Using puts in portfolio

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FBN2014
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Joined: Sat Mar 08, 2014 3:07 pm

Using puts in portfolio

Post by FBN2014 » Sun Aug 05, 2018 4:00 pm

Does anyone use a very aggressive asset allocation and then use puts to mitigate the losses when the bear market comes. What are the pros and cons of this strategy? Any good resources to learn how to do this (books, courses, etc.)
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

acegolfer
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Joined: Tue Aug 25, 2009 9:40 am

Re: Using puts in portfolio

Post by acegolfer » Sun Aug 05, 2018 4:13 pm

Google "protective put"

Theoretical
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Joined: Tue Aug 19, 2014 10:09 pm

Re: Using puts in portfolio

Post by Theoretical » Sun Aug 05, 2018 11:13 pm

Pre-GFC, there was a gap in the implied volatility and the effects of tail risk-level volatility losses. This is part of Nassim Taleb’s great trading success.

He’s since written that options are being priced to account for fat tails, so there’s a nasty volatility risk premium you have to pay now.

More recently, pre-VIX crash, the implied volatility was being priced too cheaply for a return to normal volatility, which blew up in February, big-time.

Unless you have some ugly individual stock holdings with huge capital gains that are a disproportionate part of your portfolio, the insurance cost is just too high.

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whodidntante
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Re: Using puts in portfolio

Post by whodidntante » Mon Aug 06, 2018 12:01 am

I would be much more likely to sell puts than to buy. Puts seem quite pricey to me and they've gotten more expensive recently as Theoretical mentioned. If your goal is tax efficient derisking and not market timing, you might be better off selling a futures contract. And you could obviously just sell if the taxes won't hurt you, since it's silly to be both long and short the same asset if you aren't doing it for tax reasons.

Theoretical
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Re: Using puts in portfolio

Post by Theoretical » Mon Aug 06, 2018 4:10 am

whodidntante wrote:
Mon Aug 06, 2018 12:01 am
I would be much more likely to sell puts than to buy. Puts seem quite pricey to me and they've gotten more expensive recently as Theoretical mentioned. If your goal is tax efficient derisking and not market timing, you might be better off selling a futures contract. And you could obviously just sell if the taxes won't hurt you, since it's silly to be both long and short the same asset if you aren't doing it for tax reasons.
Just don’t sell naked puts... :shock:

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