Hedging equity portfolios with long-dated puts
The guest's firm is hedging its high-net-worth portfolio model against market downside by purchasing long-dated S&P 500 put options.
The argument
The guest noted that while the S&P 500 has performed strongly, they have initiated these hedges to manage risk. This strategy is applied specifically within their platinum model for high-net-worth clients.
The thesis, stress-tested
✓ What validates it
- ✓S&P 500 experiences a significant correction or downturn
▸ Risks discussed
- ▸Time decay (theta) eroding the value of the options
- ▸Market continues to rise, rendering the puts worthless
Hear it yourself
"And I I wrote an article on Tuesday or Wednesday of this week for our daily market commentary talking about historically what happens after eight weeks of advances, which was last week. And there's only been about nine times that we've gone longer than than, sorry, that we've done eight weeks in a row of advances. And when you start talking about nine or ten weeks or eleven weeks, those become much more rare historically. So we're starting to get into to more, you know, kind of more of a category where a correction becomes a lot more a lot more probable. And so we're certainly gonna have a pullback in the market."
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