26-12-2011, 11:16 PM
Hi Temperament,
Actually i kinda agree with freedom over here, but i do understand what you are asking.
I do not have much ideas on elaborate hedging techniques and here's the only 1 i know (it first came from Kenneth Fisher, son of Philip Fisher) I read it some time ago. I wanted to find the weblink again to put here but i couldn't.
I have to also disclose that i only understand the idea, but i have never explored on the details and implementation:
(1) Let's say u r invested primarily in the S&P500. You will choose another index (call it indexA) that is highly correlated to S&P500 but it is more volatile (eg. a small cap index or something that drops more in a bear market)
(2) Buy 'out of the $' put options on indexA.
P.S. This method is like buying insurance to hedge against black swans. If nothing happens, your options just expire and u dont exercise them.
Actually i kinda agree with freedom over here, but i do understand what you are asking.
I do not have much ideas on elaborate hedging techniques and here's the only 1 i know (it first came from Kenneth Fisher, son of Philip Fisher) I read it some time ago. I wanted to find the weblink again to put here but i couldn't.
I have to also disclose that i only understand the idea, but i have never explored on the details and implementation:
(1) Let's say u r invested primarily in the S&P500. You will choose another index (call it indexA) that is highly correlated to S&P500 but it is more volatile (eg. a small cap index or something that drops more in a bear market)
(2) Buy 'out of the $' put options on indexA.
P.S. This method is like buying insurance to hedge against black swans. If nothing happens, your options just expire and u dont exercise them.