Editor's Note: With the markets struggling, we're here to help you make it through. This is Part 1 of a two-part series to help you navigate the bear market.
Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance Hedges are a good thing, but they are often misunderstood. The truth is... hedges lose the majority of the time, but that's because they're typically used as a form of insurance - just like your homeowners policy. When you pay for your insurance policy each year, you consider it money well spent. You should think about hedges in the same way. They're the cost of doing business. If you have nothing to hedge against, don't use a hedge. In this series, I will share a bunch of different ways you can hedge, depending on your risk tolerance and how much capital you have available. Let's get into my favorite hedge: the tail risk hedge. This strategy is based on protecting against an unpredictable black swan event (like the onset of the COVID-19 pandemic in March 2020). There's a lot of theory behind tail risk hedges, but I will give you the nuts and bolts. |
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