Best hedge against market drop

[rmorse]

I'm attempting to hedge a business venture, its not for an actual stock portfolio.

Then I don't have enough information to give you an intelligent suggestion.

 

[ETcallhome]

I want to hedge against a drop in the S&P from today vs. about 9 months from now. For every 1% drop from today, I want $1000 protection. So in approx. 9 months if the S&P is down 50% from today I need $50,000 coverage, if its down 10% from today i want $10,000 coverage, etc. What would give me the best protection for the least cost?

where will the money come from to buy the hedge?

 

[ETcallhome]

I'm attempting to hedge a business venture, its not for an actual stock portfolio.

ok, so you have business and are worried a downturn in the stock market will hurt you. And you need 50k for a 50% drop in the market in 9 months

ES is trading at about 2000 and it's $50 a point so 1 contract sold today would give you about a 50k profit if drops 50% to 1000. 60/40 futures tax split should also be considered if holding less than a year.

 

[CBC]

Contact Handle. He is the hedge grand master.

 

[Martinghoul]

Buy some somewhat OTM puts... Beware of the various caveats.

 

[levijean]

ok, so you have business and are worried a downturn in the stock market will hurt you. And you need 50k for a 50% drop in the market in 9 months

ES is trading at about 2000 and it's $50 a point so 1 contract sold today would give you about a 50k profit if drops 50% to 1000. 60/40 futures tax split should also be considered if holding less than a year.

I dont think I like the idea of the upside risk on a short ES position...

 

[ETcallhome]

I dont think I like the idea of the upside risk on a short ES position...

so a rise in the mkt will not necessarily help you but a drop will? Usually a hedge is set up so you will lose on one side but make money on the other.

 

[levijean]

so a rise in the mkt will not necessarily help you but a drop will? Usually a hedge is set up so you will lose on one side but make money on the other.

A rise in the market will not help me as much as a drop would hurt me.

 

[ETcallhome]

A rise in the market will not help me as much as a drop would hurt me.

then you would need most likely need an option strategy which provides you with limited upside potential and unlimited downside protection. And there are many of them and many ways to go. Good luck, I exhausted my knowledge.

 

[rmorse]

A rise in the market will not help me as much as a drop would hurt me.

So, I still think important question is, how much cash are you willing to lose to protect your situation? That will help define what you do.