| Fixed Income portfolio can suffer sudden loss due | | | | How to hedge Large cap stock against fall of |
| to by inflation or currency depreciation. If you | | | | USD. |
| have large investment in this asset class, a portion | | | | Any increase in US dollar, reduces stock price and |
| of the interest earned can be invested in | | | | commodity price. The options purchased should |
| out-of-the-money gold calls. This is a cheap way | | | | behave in the opposite manner of the basic |
| to protect your asset. | | | | portfolio and should not be purchased for |
| How to protect diversified portfolio? | | | | speculative gain through trend watching, market |
| You can diversify by owning bonds as well as | | | | timing, or chart pattern recognition. |
| stock; owning small, midsized and large companies; | | | | While classic diversification attempts to reduce the |
| and by owning different funds, some of which | | | | overall volatility of the portfolio, real diversification |
| some are value oriented, while others are growth | | | | provides customized insurance against a drop in |
| oriented. More sophisticated approach will be to | | | | value of the primary assets . The asset class |
| use Commodity fund and Hedge funds. | | | | used as a hedge must have an inverse |
| Commodity index fund is a good alternative asset | | | | relationship or correlation with the asset being |
| class to reduce over all risk of a diversified | | | | hedged. Simply put, as the price of one goes up, |
| portfolio. | | | | the price of the other should go down. Your |
| You can follow any one of the following option to | | | | investment philosophy is to own a small part of |
| protect down slide of your investment a. | | | | the company for at least 20 years. This |
| Purchasing out-of-the-money puts and calls, for | | | | ownership mentality will really give you money in |
| very small sums of money, and be content when | | | | the long run. |
| they expire worthless. b. You can also buy future | | | | In the high bull market do partial profit book |
| but it involves more money. c. If you have a | | | | regularly. If market sentiment is strong bull, use |
| home loan with a variable-rate mortgage loan, | | | | Future and options strategies. If market |
| that can be protected by buying | | | | sentiment is strong bear buy put option. Use 5% |
| out-of-the-money bond puts. d. A retired couple | | | | of your money in Future and Options trading. You |
| with a large municipal bond portfolio might consider | | | | should use Future and Option for portfolio |
| a combination of owning some precious metal | | | | management of your stock portfolio. Option |
| warehouse receipts and at the same time using a | | | | trading basically used to hedge your asset and |
| small portion of their interest stream to purchase | | | | also make some speculative gain. |
| out-of-the-money gold calls. e. You can sell US | | | | In strong bear market, your blue chip companies |
| dollar index or buy Euro. You can involve in Forex | | | | can generate good income if you use covered call |
| trading in small amount. f. Considering strong bull | | | | option regularly. It's not difficult to get 40% p.a. |
| market, you can go long term long on commodity | | | | ROI by writing Covered Call Option. |
| and roll over your contract every month end. | | | | In short, the stock market is a voting machine |
| How to protect bond portfolio against dip in | | | | and much of the time it is voting based on |
| currency If dollar price decreases, price of | | | | investors' fear or greed, not on their rational |
| municipal bond decreases but commodity price will | | | | assessments of value. Stock prices can swing |
| increases. | | | | widely in the short-term but they eventually |
| In this case exercise option to buy commodity | | | | converge to their intrinsic value over the |
| and sell USD. | | | | long-term. |