Protecting Portfolios using Options

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There are many ways to protect your portfolio from swift down moves in the market. Options provide a powerful tool to reduce downside risk in your portfolio. Most people won't hesitate to get a life insurance policy to protect their spouse or heirs but there is always hesitation when purchasing insurance for the portfolio. Like life insurance options have an expiration date with certain protections. The most common type of option used for downside protection is a put option. Consider the most simple scenario where you own a basket of large stocks that move for the most partĀ with the Dow Jones Industrial Average. Your portfolio moves 1 to 1 with this major index. Instead of buying put options on each of your stocks you can buy put options on the index to protect your investment.

There are many benefits to buying options on some indexes. The biggest besides protection of your portfolio is the tax treatment. Some broad based indexes are treated with a 60/40 tax treatment. Whether or not if you have sold your position or held it for a very little time the capital gain at the end of the year is treated with 60% long term capital gain and 40% short term capital gain. Consult your accountant to understand the full details but this provides you great way to protect your investments.

With a wealth of Portfolio Management experience Protectio InvestmentsĀ is able to manage your investments to protect and sustain your portfolio.

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TheĀ content published on does not constitute a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person, business, or entity of any kind. Please consult us further concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Ā There is inherent risk in all investments and possibility for total loss.Ā 
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