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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Using options or other strategies to protect a portfolio from large losses.
Why It Matters
Portfolio insurance is like homeowner's insurance - you hope you never need it, but you're glad it's there when disaster strikes. Buying SPY puts or VIX calls before a crash can offset losses in your stock holdings. The cost (premium) is your 'insurance premium' for peace of mind.
Key Points
- Costs 1-3% annually to maintain put protection on a portfolio
- Can use index options (SPY puts) to hedge a diversified stock portfolio
- Some hedge with VIX calls - they spike when markets crash
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Protective Puts
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Related Terms
Common Questions
Using options or other strategies to protect a portfolio from large losses. Portfolio insurance is like homeowner's insurance - you hope you never need it, but you're glad it's there when disaster strikes. Buying SPY puts or VIX calls before a crash can offset losses in your stock holdings.
Portfolio insurance is like homeowner's insurance - you hope you never need it, but you're glad it's there when disaster strikes. Buying SPY puts or VIX calls before a crash can offset losses in your stock holdings. The cost (premium) is your 'insurance premium' for peace of mind.
Costs 1-3% annually to maintain put protection on a portfolio
Can use index options (SPY puts) to hedge a diversified stock portfolio
Some hedge with VIX calls - they spike when markets crash