Amidst rate cuts from the RBA and the turbulence of the US presidential election, never before have we seen a more volatile time in markets. Here’s your guide on how to protect and position your portfolio throughout these uncertain times:
These are KNOWN events – Plan for them!
The first thing to understand for any portfolio protection plan. Is that events like RBA rates cut, or a presidential election are KNOWN events. Unknown events like September 11 or Coronavirus are impossible to plan for as we know. However, take the presidential election as an example – you have 4 years to get your strategy together to protect and profit off what’s happening.
For anyone who suggests simply ‘ride it out’ – you’re missing out on some major profits by employing various strategies. In a very strategic way, not to mention having no protection to the downside in extremely volatile conditions.
Host Andrew Baxter’s advice to get planning early on in the piece. So that you are ready to position yourself amidst these once-off, unique events. This includes both a risk management or ‘protection’ plan. And of course the implementation of a strategy that profits to the downside or on increased volatility.
Protection for the presidential election
Let’s face it – the RBA rate cut of 0.1% will make virtually no difference to our everyday lives. And really a tiny blimp in the greater scheme of things when it comes to the stock market. Hence, let’s talk about how to protect your long positions amidst the US presidential election. The first piece of advice is to have your risk managed and 100% contained into the run up of the election on November 3rd.
Host Andrew Baxter suggests buying put options over your long positions given they act as an ‘insurance claim’ over your shares Here. You can sell your shares for an amount you specify beforehand, regardless of the actual share price. Yes, these puts will come at an additional cost, however, this is a case of digging the well before you need the water as an exercise for peace of mind.
As a more aggressive play for risk management. Employing some options spreads over your portfolio can be particularly protective during these times. Andrew Baxter speaks highly of the use of Bear Call Spreads given their ability to hedge you to the downside.
A bear call spread is a derivatives strategy which he specifically teaches throughout his advanced options program. At Australian Investment Education in order to protect and also potentially profit in these volatile market conditions.
Positioning for the presidential election
The next step, once you’ve got your risk management in place. Is to actually look to profit from one of these unique events. Once again – the presidential election is a KNOWN event and it is also known that volatility typically increases a hell of a lot in the run up to it. Learning which strategy to overlay and how to get exposure to this during turbulent times is like knowing which club to pull out of your golf bag each hole.
The advice – trade the obvious. One of the trades that host Andrew Baxter has running was a speculative, bullish option spread over the VIX index (the volatility index). Regardless of share price movement, Baxter is currently profiting off the market being much more turbulent than usual and is currently sitting on a hefty 60% profit for just over a week in the trade.
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Taking that next step: Get educated
Anyone who thinks burying their head in the sand with the hopes that this US presidential election won’t have much of an effect on our market, is naïve. Whether it be the uncertainty of a new office upon a Joe Biden win or the civil unrest that will arise upon a Trump win, it will have an immense effect here on the Aussie market.
The advice – get yourself educated. These turbulent times are not only about protecting, but also profit. There is plenty of money to make out there during these unique events. And learning to do so is prudent for any sophisticated investor.
Doing nothing is precisely ignorant and most definitely expensive.
Rather, reach out to Andrews team at Australian Investment Education. To see learn exactly how to protect and position your portfolio amidst the US presidential election.