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FT recently reported that hedge fund managers are buying puts on:

stock indices and also on currencies sensitive to risk appetite such as the Australian dollar and the Korean won.

Generally, what kinds of puts might hedge against a potential second market plunge?

I'm thinking to avoid S&P 500 because it's heavily influenced by tech giants who are doing well regardless of the pandemic.

I would be grateful for anyone's thoughts!

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  • What's in your portfolio, or in general what personal losses are you trying to hedge against?
    – GS - Apologise to Monica ♦
    Jun 6, 2020 at 19:31
  • Hi @GS-ApologisetoMonica - I hold positions in Shell, IAG, gold, cash and Bitcoin.
    – Will
    Jun 6, 2020 at 19:43

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Variations of this question have been asked before. In these links, I've explained many of the ways to hedge equity positions:

How could I calculate the probability of getting wiped out?

Profiting from an economic bubble collapse

How should a portfolio be managed in preparation for a financial crisis?

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  • Dear Bob, thank you for getting back to my question - your answers are so fantastically written! I found it hilarious that the OP of the third question unwittingly forecast the recent crash, two years prior to it happening. I am still a little unsure what underlying asset to base the put buying on but guess that something like a general index or industry linked ETF (e.g. travel) is a better bet than an individual stock. I'm also considering buying LEAP calls on oil futures when there's signs of economic recovery.
    – Will
    Jun 7, 2020 at 9:42
  • @Will - Thanks for the kind words. Yes, it's ironic that the OP of the third question unwittingly forecast the recent crash. Nice catch. There's no one size fits all answer to hedging. You just have to figure out what underlying (stock, ETF, index) gives you the bang for the buck that you want and place your bet there. I haven't written much about it but you also need to figure out how you're going to manage a hedged position if the underlying collapses and those positions become more valuable.
    – Bob Baerker
    Jun 7, 2020 at 10:59
  • @Will Bob is certainly the options expert around here :) He's the only one yet to have earned the silver options tag badge. And that's despite us bronze options tag badge holders having had a significant head start!
    – Chris W. Rea
    Jun 8, 2020 at 21:38
  • @Chris W. Rea - Et tu Brutus? --> Thanks for the kind words. Option expert? Hardly. I've very deficient on the theory side but AFAIC, that's not necessary for a retail trader. Whatever degree of expertise I have comes from 35 or so years of utilizing options in multiple ways. If it exists, how much will it cost me to BUY the gold options tag? This is way too much work ;->)
    – Bob Baerker
    Jun 8, 2020 at 21:47
  • @BobBaerker I feel the same way about the elusive, never-awarded gold Canada tag badge :) Problem is such questions don't come up nearly as often as United-States, gold awarded 14 times. :/ I've got some golds but Canada gold would be sweeeet :D I'm half way there. At this rate, another ten years LOL. I think you're closer on the Options gold than I am on Canada.
    – Chris W. Rea
    Jun 8, 2020 at 21:58

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