– What if the market comes apart, how can you protect yourself using options?
Ok, so we have FOMC Wednesday, September 22. What do we do and what can we expect? First, let me start by saying I don’t think the FED will say anything that will be earth-shattering. They already pushed the dreaded tapering off until Nov and they will probably use the transitory term to lighten the concerns of inflation, the US, and world economies (think of China). I also think they will point to better-than-expected inflation numbers and how things were not as bad as projected. SO what is one to do?
If you are a stock trader chances are you may still have considerable risk on the table. With the recent semi-market meltdown (Note the markets only fell about 5% since the market high about 2 weeks ago) there may be traders stuck in long positions.
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So this begs the question. What do you do? Are you sucked down into oblivion with the impending black swan? Do you cut your losses now and get out and hide? Or do you try to find a way to protect yourself and minimize your losses? If you are like me you never like to lose and I am one to never throw in the towel. If this is you then you can “leverage” options to hedge. The problem here is most do not understand how to hedge with options. So here are some “options” on how to use options to hedge.
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Every day on Options Trading Signals we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs which are always on once you own.
Enjoy your day!
Chris Vermeulen
Founder & Chief Market Strategist
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