You know investing can be a bumpy ride. Hedging may be a way to create a smoother ride.
The key to a hedging strategy is to take an uncorrelated offsetting position relative to some asset (stock, etc.).
Put options on an asset are especially effective for hedging since a put option is inversely correlated to the asset itself. For example, when you use a put option on a stock, if the stock price goes down, the value of the put option goes up, and vice versa.
We believe that put options are much more effective in managing and reducing risk than other forms of hedging. They offer control over the hedging process, are inversely correlated to the asset they seek to protect, may reduce adverse investor behavior, and offer profit potential.
Some may shy away from mutual funds or other investments that use options due to unfamiliarity with options or their capabilities. Hedging, however, offers a direct way to address market risk. A hedged equity approach defines and manages risk via put options may be beneficial for investors who want to:
Market risk is too important of a threat to be dealt with passively.