Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance Yesterday I covered hedging strategies such as tail risk hedging for "black swan" type of events, which are unpredictable. However, monitoring VIX levels can help you sniff out whether something big is coming down the pike. Today, I'll talk about a great way to add upside to your hedges by using leveraged ETFs, spreads and LEAPS. How Leveraged ETFs reduce your costs Leveraged ETFs are great for trend moves. So, if the market is moving lower every day, I can hop on a leveraged ETF to accentuate my returns. Just know that these reset daily and will not make you money unless you have a big move right after you buy it. A choppy market will not help with these. How I use Leveraged ETFs and LEAPs... In my stock portfolio, I have lots of dividend paying stocks and some small cap stocks that do not have LEAP options. In my option portfolio, I have lots of LEAP options on stocks that DO NOT PAY dividends (this allows me to risk 10% to 15% of the amount I would invest in the same stocks). I expect to exit these options positions within a year or two. I also have a lot of spreads. The spreads are for high premium stocks like Meta (META), for example. They're also high for a casino stock since the sector is so volatile and the premiums are so high. And, then I have my pure speculations - cheap options on potential flyers like Marathon Digital or the FXI China ETF. Bottom line - I look for ways to minimize my outlay by using spreads, covered calls. Then, for stocks I really want to own, I sell puts to generate income while I wait. In all cases, however, I POSITION SIZE. |
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