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I am sometimes tempted by the juicy dividends of some Canadian stocks because dividends are taxed favorably by CRA. One such company is RSI

Problem is, I would like to protect the long position from downside risk, but without put options, how can I do that?

This stock does not have any option chain.

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If there are no traded options in a company you can get your broker to write OTC options but this may not be possible given some restrictions on accounts. Going short on futures may also be an option. You can also open a downside CFD (contract for difference) on the stock but will have to have margin posted against it so will have to hold cash (or possibly liquid assets if your AUM is large enough) to cover the margin which is unutilized cash in the portfolio that needs to be factored into any portfolio calculations as a cost. Diversifying into uncorrelated stock or shorting correlated (but low div yield) stock would also have the same effect.

stop loss orders would probably not be appropriate as it is not the price of the stock that you are concerned with but mitigating all price changes and just receiving the dividend on the stock.

warning: in a crash (almost) all stocks become suddenly correlated so be aware that might cause you a short term loss. CFDs are complex and require a degree of sophistication before you can trade them well but as you seem to understand options they should not be too hard to understand.

  • Yes, I know that in a crash, everything becomes correlated, that is why I dont trust hedging with other uncorrelated assets. Only with options :( – Victor123 Apr 2 '15 at 13:47
  • Short negatively correlates with the asset you shorted. In a crash, you could make a ton of profit off of it. – PyRulez Sep 26 '15 at 4:44
  • I did say SUDDENLY - you can't make a lot of profit off a short position when you are holding a basket of long positions that suddenly became correlated and falling. – MD-Tech Sep 28 '15 at 9:30
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You could always maintain a limit order to sell at a price you're comfortable with.

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