Crash Protection Tip Number 1
On Monday I said I was going to provide a few tips on how to protect your portfolio against downside. One way of doing that is with small positions of aggressive puts.
Now, I rarely ever talk about put options, but they can be a great tool to hedge against loss if used correctly.
For example, you’re not upset when you have to pay your car insurance each month right?
That’s because it’s a relatively small fee in case something big happens!
You can treat aggressive puts the same way. If the majority of your portfolio is bullish and you’re making steady gains, then a small position of cheap puts will be offset by your profits!
Sure, it might cut into your profits a little bit if they expire worthless. But that’s a small price to pay for the added safety in case things go south.
And if a big decline in stocks does happen, your bearish positions will help offset loss you might see in other parts of your portfolio.
Just make sure you’re not paying too much for this ‘insurance’ or you’ll cut your gains down…
Bottom line: Utilize small bearish positions as insurance against potential downside!
Keep it In the Money,
Trading Tip of the Day: When Should You Sell A Winning Play?
Seeing green in your portfolio is a great feeling, but the last thing you want is to do is hold on too long and see a stock reverse itself into a loss.
The market will always go up and down, just like individual stocks will. The only way to hold gains with certainty is to sell for cash.
So, when should you lock in gains and sell?
Everybody has different strategies for taking money off the table and methods might vary depending on the style of investing.
But a general rule of thumb is to stay consistent with your profit targets and exit plans…
If you have a strategy that’s working, keeping it consistent will make it repeatable. Which will ultimately lead to bigger gains.
You might get a little frustrated if you sell a trade too early, but there will always be other opportunities to profit…
I’ll leave you with a final thought to cap it off: nobody ever went broke making money!
— Greg Guenthner