{"id":10209,"date":"2022-11-17T13:22:03","date_gmt":"2022-11-17T18:22:03","guid":{"rendered":"https:\/\/rixtrema.com\/blog\/?p=10209"},"modified":"2022-11-22T07:25:15","modified_gmt":"2022-11-22T12:25:15","slug":"black-swan-put-protection-how-to-impement-it-in-your-portfolio","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/black-swan-put-protection-how-to-impement-it-in-your-portfolio\/","title":{"rendered":"Black Swan Put Protection: How to Impement It in Your Portfolio"},"content":{"rendered":"\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><iframe loading=\"lazy\" title=\"Black Swan Put Protection: How to Impement It in Your Portfolio (Ep. 14)\" width=\"960\" height=\"540\" src=\"https:\/\/www.youtube.com\/embed\/3YFicfsI8GA?feature=oembed&#038;enablejsapi=1&#038;origin=https:\/\/rixtrema.com\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<p>&nbsp;<\/p>\n\n\n\n<script src=\"https:\/\/apis.google.com\/js\/platform.js\"><\/script>\n<div class=\"g-ytsubscribe\" data-channel=\"rixtrema\" data-layout=\"default\" data-count=\"default\"><\/div>\n\n\n<p><em><strong>Options, particularly put options, have a big role in risk management. In this video we discuss how S&amp;P 500 put options can hedge risks and how much it costs to employ put options to hedge risks.<\/strong><\/em><\/p>\n<p>\u00a0<\/p>\n<h2><b>How to Hedge a Portfolio With Options<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">In the past few weeks we\u2019ve been talking a lot about portfolio scenarios related to the news. However whenever we talk about China, currencies, oil or silver, we\u2019re talking about the effect they have on markets; essentially equity market moves. So with this in mind, let\u2019s take a look at\u00a0\u00a0<\/span><span style=\"font-weight: 400;\">what happens when you hedge a portfolio with some options, or a short ETF.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In order to make moves yourself, or on behalf of your clients, it helps to have a primer, or a podcast, on how all this works.\u00a0<\/span><\/p>\n<p><br \/><br \/><\/p>\n<h2><b>Put Option<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A<\/span><a href=\"https:\/\/www.businessinsider.com\/personal-finance\/put-option?r=US&amp;IR=T\"><span style=\"font-weight: 400;\"> put option<\/span><\/a><span style=\"font-weight: 400;\"> gives you the opportunity to profit when the market falls, so you get protection on the downside. When you buy a put at a certain price on the S&amp;P, right now at the time of writing it\u2019s 4000, if it falls 10% to 3600 you\u2019d be able to profit from that fall.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019re paying a small premium for that option. Similar to an insurance premium it is for a period of time, a month, a week, a year. Basically it gives you the right to sell at a certain point.<\/span><\/p>\n<p>\u00a0<\/p>\n<h2><b>Short ETF<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Something similar, but with different risks, is a <\/span><a href=\"https:\/\/www.investopedia.com\/terms\/i\/inverse-etf.asp\"><span style=\"font-weight: 400;\">short ETF<\/span><\/a><span style=\"font-weight: 400;\">. If you buy one on the S&amp;P 500 right now you can sell it when it gets lower and make a profit, because when it goes down the price of the ETF goes up. It works like a normal ETF but inversely<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400;\">The main difference between a short and a put is the amount you are risking. The former you can lose a lot, the latter only the amount you put in. However you can overpay for an option. For example right now when everything is going up, it might be better to buy an option rather than when the market is volatile; because sellers are not stupid and you could end up paying a hefty price.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<p><span style=\"font-weight: 400;\">One of the main inputs into option prices is volatility measure. Volatility is a key pricing for options. With options you tend to pay a little more for protection on the downside than you do for participation on the upside.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<h2><b>Implied Volatility<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">This is something specific to an option. Where you price an option and you can imply what the volatility is. Then there is a volatility smile which means for different prices<\/span><a href=\"https:\/\/economictimes.indiatimes.com\/definition\/implied-volatility\"><span style=\"font-weight: 400;\"> implied volatility <\/span><\/a><span style=\"font-weight: 400;\">is different, which is strange. It is known in financial circles as the wrong number to put into the wrong formula to get the right price. There are of course smart people trading options, but often the theory behind a lot of it is overly simplistic, and makes too many assumptions, for the real world. So people use implied volatility as a stop gap, they know the formula doesn\u2019t really work but they adjust some other number to make it work. If it doesn\u2019t work here, move the volatility over etc.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you trade options, you need to think about how this implied volatility model is essentially the cost of an option. Despite what the term volatility might suggest, it\u2019s not about that, it tells you the cost of an option. These pricing models often don\u2019t have applications in the real world or financial markets. The 2008 crisis, for example, would have been impossible according to some of these models.\u00a0<\/span><\/p>\n<p>\u00a0<\/p>\n<h2><b>Take Your Time With Options<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">You&#8217;re going to pay more for a long dated option than a short dated option, because you have more time to cash in essentially. The longer you go the more chance the price will fall and \u2018the insurer\u2019 will have to pay. If you insure a car there\u2019s more chance something will go wrong, the longer the time period.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0To get a more in depth analysis of put options, listen to the entire podcast now, which includes specific examples of portfolio risk models.<\/span><\/p>\n<p>\u00a0<\/p>\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:33.33%\">\n<p>Follow us on <strong>LinkedIn<\/strong><\/p>\n\n\n\n<script src=\"https:\/\/platform.linkedin.com\/in.js\" type=\"text\/javascript\"> lang: en_US<\/script>\n<script type=\"IN\/FollowCompany\" data-id=\"1334326\" data-counter=\"bottom\"><\/script>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:66.66%\"><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:66.66%\">\n<iframe loading=\"lazy\" width=\"100%\" height=\"166\" scrolling=\"no\" frameborder=\"no\" allow=\"autoplay\" src=\"https:\/\/w.soundcloud.com\/player\/?url=https%3A\/\/api.soundcloud.com\/tracks\/1385122594&amp;color=%23ff5500&amp;auto_play=false&amp;hide_related=true&amp;show_comments=false&amp;show_user=true&amp;show_reposts=false&amp;show_teaser=false\"><\/iframe><div style=\"font-size: 10px; color: #cccccc;line-break: anywhere;word-break: normal;overflow: hidden;white-space: nowrap;text-overflow: ellipsis; font-family: Interstate,Lucida Grande,Lucida Sans Unicode,Lucida Sans,Garuda,Verdana,Tahoma,sans-serif;font-weight: 100;\"><a href=\"https:\/\/soundcloud.com\/rixtrema\" title=\"Investing Counterpoint\" target=\"_blank\" style=\"color: #cccccc; text-decoration: none;\" rel=\"noopener\">Investing Counterpoint<\/a> \u00b7 <a href=\"https:\/\/soundcloud.com\/rixtrema\/black-swan-put-protection-how-to-impement-it-in-your-portfolio\" title=\"Black Swan Put Protection: How to Impement It in Your Portfolio\" target=\"_blank\" style=\"color: #cccccc; text-decoration: none;\" rel=\"noopener\">Black Swan Put Protection: How to Impement It in Your Portfolio<\/a><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:33.33%\"><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:66.66%\">\n<iframe allow=\"autoplay *; encrypted-media *; fullscreen *; clipboard-write\" frameborder=\"0\" height=\"175\" style=\"width:100%;max-width:660px;overflow:hidden;background:transparent;\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/black-swan-put-protection-how-to-impement-it-in-your\/id1466695263?i=1000586590695\"><\/iframe>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:33.33%\"><\/div>\n<\/div>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/rixtrema.com\/landings_pctpro?source=blog17112022\" target=\"_blank\" rel=\"noreferrer noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"147\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/03\/Portfolio-Crash-Testing-PRO-new-min.png\" alt=\"Portfolio Crash Testing PRO\" class=\"wp-image-6933\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/03\/Portfolio-Crash-Testing-PRO-new-min.png 800w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/03\/Portfolio-Crash-Testing-PRO-new-min-300x55.png 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/03\/Portfolio-Crash-Testing-PRO-new-min-768x141.png 768w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/03\/Portfolio-Crash-Testing-PRO-new-min-500x92.png 500w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/a><\/figure>\n\n\n","protected":false},"excerpt":{"rendered":"<p>Options, particularly put options, have a big role in risk management. In this video we discuss how S&#038;P 500 put options can hedge risks and how much it costs to employ put options to hedge risks.<\/p>\n","protected":false},"author":3,"featured_media":10213,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[168,169,201],"tags":[7,12,2319],"class_list":["post-10209","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","category-podcasts","category-video","tag-financial-advisor","tag-financial-advisors","tag-options"],"jetpack_featured_media_url":"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2022\/11\/Black-Swan-Put-Protection1.jpg","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v15.9.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Black Swan Put Protection: How to Impement It in Your Portfolio<\/title>\n<meta name=\"description\" content=\"Options, particularly put options, have a big role in risk management. 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