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Protecting A Portfolio

Protective Collars – LEAPS & $VIX (17:11)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 17, No. 11 on June 12, 2008. 

In this article, we’re going to examine a popular strategy – the “collar.” We feel it’s apropos, since it appears that stocks may have now embarked on the next leg of the bear market. Moreover, we’ll give you our take on how to best utilize the strategy, and we’ll also take a look at a new application with $VIX options that should be of great interest.

Protecting A Stock Portfolio With $VIX Options (15:06)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 15, No. 6 on March 30, 2006. 

As our regular subscribers know, the CBOE recently listed cash-based options on its Volatility Index ($VIX). We have published several recent articles describing the details of these options, so we’ll review those only briefly in this article.

Protecting a Portfolio of Stocks (01:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 1, No. 12 on June 11, 1992. 

With myriad investment advisors and the media trumpeting the fact that the market is overvalued, and with scary comparisons to the summer of 1987 abounding, an owner of stocks might justifiably be concerned with how he can safeguard his portfolio. He may not want to sell out his portfolio and go into an all cash position, but he would like to have some "insurance" in case the market takes a nosedive. Most investors in today's markets are familiar with the fact that index futures or index options can be used to protect one's portfolio. However, few know exactly how to adequately and correctly protect their portfolio of stocks. In this week's feature article, we'll describe the way in which one can compute the number of futures or options that would be needed to properly hedge his portfolio.

Modern Portfolio Protection (16:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 13 on July 13, 2007. 

In this newsletter, over the years we have presented many methods for protecting a portfolio of stocks. Some are “ancient,” such as buying S&P 500 Index ($SPX) puts and some are “new,” such as buying $VIX calls. With the continuation of the bull market well into its fourth year (making it the fifth longest bull market in history – but not the fifth largest), many portfolio managers and individual investors are becoming concerned that a sharp correction may be more than just a remote possibility. As such, the topic of protecting a portfolio with derivatives has once again risen to the forefront. With that in mind, I wrote The Striking Price column in Barron’s this week, on this topic.

Protecting Stocks: Covered Call Writing vs. Put Buying (12:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 12, No. 10 on May 22, 2003. 

Most people think of covered call writing as at least partial protection against a downside move by their stocks. Of course, buying a put as protection for a stock position affords a lot more protection – in fact, complete protection below the striking price. But call writing is generally more popular because it involves taking in option premium rather than paying it out. Still, there are times when one strategy is clearly superior to the other. This is one of those times. So, in this article, we’ll compare how stock owners should view the two in any environment and then specifically address the current environment.

Portfolio Protection, Revisited (20:21)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 20, No. 21 on November 17, 2011. 

We have written about the subject of protecting a portfolio of stocks with derivatives several times over the years, although it’s been a while (Volume 19, Numbers 6 and 12 had articles on the subject). Recently, some subscribers have inquired about how to calculate the amount of protection they need.

Option Basics: Portfolio Insurance (5:2)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 2 on January 25, 1996.

It's been almost a year since we addressed this topic. If this article is the springboard for a market like we had last year, then you won't need portfolio insurance. However, it never hurts to know about it, especially with the market being at such lofty levels, and many investors sitting on large unrealized gains in their stock portfolios.

Option Basics: Protecting A Portfolio With Options (4:2)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 2 on January 26, 1995.

One of the most important features of options is that they can remove some or all of the risk of stock ownership (or futures, where futures options are concerned). This is particularly attractive to stock owners who want some form of "insurance" against a steep or prolonged market decline.

There are several ways in which options can be used as an insurance policy for one's portfolio of stock. One might sell calls, or he might buy puts, or he might do both. In any case, these option transactions would profit if stocks fell and that profit would offset some or all of the losses incurred by stocks owned during the market decline. These concepts are not complicated and are used by many stock owners, particularly professional money managers.

Option Basics: Buying Options As a Stock Substitute (04:01)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 1 on January 12, 1995.

Buying options is often regarded as one of the most speculative activities. However, as we have shown time and time again, there are often differing ways in which one can establish a strategy. These different ways may change the speculative to the conservative, or at least moderate things somewhat. Buying options is no exception.

McMillan Options Mentoring

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
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