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