Assume you hold a well balanced portfolio of common stocks. Under what conditions might you want to use a stock index (of ETF) option to hedge the portfolio?
a) Briefly explain how such options could be used to hedge a portfolio against a drop in the market.
b) Discuss what happens if the market does, in fact, go down
c) What happens if the market goes up instead?
First, exchange traded funds can be used to reduce the risks exposure of the portfolio. One ETF investment strategy is a covered call which can lock in profits or protect the portfolio in a downside swing. Another strategy is purchasing a covered of ...
The expert briefly explains how such options could be used to hedge a portfolio against a drop in the market. If the market goes down is analyzed.