Executive Summary

• What you need to know about hedging with
  • Stops
  • Inverse and leveraged ETFs
  • Shorts
  • Options
  • Futures
• Deciding which hedging instruments are appropriate for your portfolio

If you have not yet read Part 1: Defying Gravity available free to all readers, please click here to read it first.

OK – hedging sounds prudent. But how do you do it?

Our focus here in Part 2 of this report is to cover the most common vehicles used in hedging strategies. Each one merits its own dedicated report (a series we’ll likely create in the future) to truly understand how and when to best deploy, so this report will focus on providing you with a good introduction to each, with guidance on how to further explore the ones that strike you as appropriate for your needs and personal risk tolerance.

Before continuing further though, let me make a few things absolutely clear. This is NOT personal financial advice. This material is for educational purposes only, and as an aid for you to discuss these options more intelligently with your professional financial adviser(s) before taking any action. (If you do not have a financial adviser or do not feel comfortable with your current adviser’s expertise with these hedging vehicles, we’ll be happy to refer you to our endorsed adviser)

Suffice it to say, everything discussed in this report (even the % cash component mentioned in Part 1) should be reviewed with your financial adviser before taking any action. Am I being excessively repetitive here in order to drive this point home? Good…

Stops

An easy way to limit your downside on large positions in your portfolio is to set stops.

(Stops can be used on positions of any size, but you’ll typically want to employ them on your largest ones first, where your exposure is greater.)

A stop order (also referred to as a “stop-loss” order) is used to trigger the sale or purchase of a stock once its price reaches a predetermined value, known as the stop price.

As an example, let’s say you bought a stock for $50.