Defined Risk Investment Process

Invested for Growth, Hedged Against Risk

How It Works

Invest in Equities

To participate in potential market upside.

ALWAYS INVESTED in equity markets for growth via low-cost ETFs (buy & hold)

Hedge the Equities

To mitigate risks of bear markets.

ALWAYS HEDGED by actively managing long-term put options (LEAPs)

Seek Additional Return

To offset the cost of the hedge.

Actively managing shorter-term options portfolio, utilizing a disciplined, time-tested approach

When the market drops and the equity loses value, the put option increases in value, and vice versa.

This counter-balancing investment approach is engineered to NOT lose big.

Simple. Effective.


The effectiveness of the hedge and degree of downside risk mitigation varies with market conditions. The Defined Risk Strategy can and does have periods of losses.

Our goals-based hedged-equity approach is driven by a three-step, rules-based and repeatable investment process that removes emotions from the investment process.


The Defined Risk Strategy is Always Invested, Always Hedged.


A distinct, time-tested blend of passive investing and active risk management.


Repeatable 3 Step Investment Process

Step 1 - Invest in Equities

Always InvestedPassive, Index Investing

Equity markets tend to go up over time and outperform other asset classes over the long term.

  • So we invest passively (buy and hold) in low-cost equity index ETFs to participate in equity market growth over time.
  • Represents about 90% of the portfolio
Step 2 - Hedge the Equities

Always Hedged – Active Risk Management

We seek to limit losses on a calendar year basis, and especially during bear markets, by purchasing longer-term put options (LEAPs), at- or near-the-money, on the entire underlying ETF portfolio. Longer-term puts offer enhanced cost efficiency and stability.


We roll, or reset, the hedge annually so the DRS is not under duress to seek protection in bear markets.


Also, after large up or down moves in the underlying index, we look to rehedge. After large upward moves, we seek to lock in gains and bring the hedge level up closer to the market level. During significant market declines (around a 20% decline from the prior hedge position), we seek to rehedge. We sell what has become a deep-in-the-money put option hedge and buy a new LEAP at- or near-the-money. The sale of the initial hedge in such instances generates capital we may then use to acquire additional equity at a market low.

Step 3- Seek Additional Return

We actively manage a shorter-term options portfolio using a disciplined, rules-based approach to help offset the cost of hedge and provide additional portfolio return.

Actively Managed, Rules-Based Trades


  • No options strategy works all the time. 
  • Markets are always evolving.
  • Thus, RISK is always evolving.
  • As such, an active approach is necessary.
Monitor and Adjust

Propriety software enables us to: 

  • Obtain best-execution on all trades
  • Block trade all accounts for equal, efficient, and simultaneous trading
  • Allocate trades evenly to all separately managed accounts
  • Oversee, re-hedge, and rebalance each separately managed account


Monitor on a daily basis:

    • Put option exposure to maintain hedge relative to equity
    • Cash flows, new investments, and equity dividends to remain fully invested

Portfolio Rebalance (Re-Hedge) Process: 

  • Rebalance equity & hedge allocation annually,
  • Or Rebalance intra-year:
    • after big market gains – raise hedge level
    • after big market losses – monetize existing hedge, set new hedge & buy more equity at market low

Rolling the Hedge 

A Legacy of Success

The DRS was launched in 1997 to provide investors with a better way to invest over full-market cycles—generate consistent returns and avoid major losses in bear markets.


So how’d we do?

Suite of Defined Risk Solutions

The Defined Risk Strategy is available across multiple asset classes and investment structures to serve a wide range of investor objectives and risk tolerance levels.

Want to speak with a portfolio specialist or advisor consultant?

A Message from Founder, Randy Swan

Randy Swan discusses how the Defined Risk Strategy is designed to address the investment challenges of today and tomorrow.

Meet Swan Global Investments

Learn more about the Swan team and the unique design of the Defined Risk Strategy.