How do you hedge your long term stock portfolio?

P

pisa

How do you hedge your long term stock portfolio?

Long term means trading positions with a holding period up to months but no buy and hold positions.

Do you only use a stop and let the market trigger it? That is what I currently do. But because the stop could be far away from current price I usually give back large parts of profits before my stop is triggered. I'm searching for a way to secure some of these profits. How do you manage the position if there is an extended move of several weeks in your favour in a stock. Do you reduce the position? Do you buy short term puts to hedge the position and if so how much of your profits are you willing to spend for the hedge. Do you build short positions to reduce the overall net long exposure of your portfolio and if so in the general market, any stock, or stocks of the same sector? Would be interesting to read some of your tactics to manage your longer term trading positions.
 
Stops are not a hedge. You could invest in asset classes that trade with a negative beta to your positions. You could buy OTM puts and sell OTM calls in the SPX vs your portfolio.

1245
 
When you expect a short lived dip you could use inverse / bear ETFs, e.g. SPXS, REW, etc.

Pros: leveraged, cheaper than option premiums (?), potentially cheaper than removing/reinstating multiple stock positions, no shorting required / can be used with cash account

Cons: requires additional capital, trading skill required for timing
 
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Perhaps starting from here:
http://www.amazon.com/TAIL-RISK-HEDGING-Creating-Portfolios/dp/0071791752

TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets
Hardcover – January 20, 2014
by Vineer Bhansali

"
Tail Risk Hedging explores how to:

* Generate profits from volatility and illiquidity during tail-risk events in equity and credit markets
* Buy attractively priced tail hedges that add value to a portfolio and quantify basis risk
* Interpret the psychology of investors in option pricing and portfolio construction
* Customize explicit hedges for retirement investments
* Hedge risk factors such as duration risk and inflation risk

Managing tail risk is today's most significant development in risk management, and this thorough guide helps you access every aspect of it. With the time-tested and mathematically rigorous strategies described here, including pieces of computer code, you get access to insights to help mitigate portfolio losses in significant downturns, create explosive liquidity while unhedged participants are forced to sell, and create more aggressive yet tail-risk-focused portfolios. The book also gives you a unique, higher level view of how tail risk is related to investing in alternatives, and of derivatives such as zerocost collars and variance swaps. Volatility and tail risks are here to stay, and so should your clients' wealth when you use Tail Risk Hedging for managing portfolios.
"
 
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