So, today?s lesson: Own some index puts as a hedge.
The stock market is on a run like I have never seen in my 40+ years in this business. If you have stocks in your portfolio (as well you should) then you must also be prepared for a downturn. Perhaps a big, mega downturn.
Hey, I was trading in October 1987 when the market crashed 22% in one day! I?m not saying that is likely anytime soon, but to say it can?t happen is foolish. Black Swans do fly, more often than intuition would suggest.
Only once in the last 89 years has the S&P 500 not dropped at least 4.4% from an interim peak,
So, today?s lesson: Own some index puts as a hedge. They are insanely cheap now. The implied volatility index, the VIX?is at 11.75, very low in historical terms. In other words, downside insurance is there to be had for not much money. What is your risk tolerance? 5%, 10%, 20%? Buy an index ?put that matches that risk. You?ll sleep better, believe me.
To misquote a ubiquitous TV ad, ?15 minutes of buying puts could save you less than 15% of your portfolio?.