Ep 76: Hedging a Portfolio in Trouble and Killing Your Risk!
★ SUMMARY ★
in this episode we’re going to be discussing hedging a portfolio in trouble or preparing for a fast market move.
I’ve already actually shot this video, and unfortunately we had a video crash so I had to record it, so here what I want to do is, right around 3 o’clock in the afternoon, March 17th 2016, I’m going to go ahead and re-film this video and give you some insight.
Some of these positions that we’ll be talking about are actually just some of the things that I’ve actually just done. So here we are in a simulated trading panel and platform, with fake money, not real money that I’m going to share some insight with you about hedging, and understanding how to hedge, what is hedging, why you may want to hedge and so forth.
Let’s get started
To get the discussion started, let’s go ahead and first look at a general portfolio. And if we were to do that, let’s go ahead and purchase some shares, again, fake shares, fake money.
We’ll go ahead and purchase some shares, let’s say 100 shares of Caterpillar right here, so we went ahead, we got filled in that, and we’ll go ahead and get some shares of Wal-Mart. We’ll go ahead and get 100 shares of Wal-Mart as well.
We’re filled in both of those, and now you can see we have 100 shares of caterpillar, 100 shares of Wal-Mart, and we’re actually already up $10, which, things move pretty quick in the market. But if you look at this over all, as a portfolio beta waited, and I’ll go ahead and just hide the simulations.
You can see that right here on a portfolio beta waited, you can see that right here, as these stocks move up, this is my portfolio.
This typically is used a lot in option trading portfolio. And with option trading there’s a lot of time expiration, which I’ve done here in episode 75, but my goal for you here to discuss some hedging is really to see how far advanced we can get in these lessons.
Learn how to manage your portfolio
With hedging, it’s all about learning how to manage your portfolio. This profit and loss graph that we’re looking at right here, this is just a picture that shows your positions.
And if you start understanding these positions and know what is happening to your portfolio, you’re able to better make changes and adjustments when a black swan event happens. When something unexpectedly happens, or if you expect the market to sell off.
I’ve put these positions in a more positive direction, because that’s how a portfolio is typically structured, we look for stock appreciation. But of course you could have shorting positions in here and all kinds of other positions. Don’t let that confuse you; you could do this exact same thing to the negative side as well.
Here in this example we have a few basic positions on, and if we go ahead and just look at the portfolio beta waited on caterpillar, you can see that right here we have a delta of 100, what does that mean? It means that for every dollar move that stock head higher, we make $100, because we have 100 shares.
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