**A New High For WNR**

Western Refining, Inc. (NYSE:WNR) hit a new 52-week high on Tuesday. Given that, this may seem like an odd time to talk about hedging it, but sometimes it pays to hedge a stock when it's making new highs. Apple, Inc. (NASDAQ:AAPL) longs who hedged when it was hitting highs last year are certainly glad they did. For WNR longs who want to stay in the stock, but are considering adding downside protection, we'll look at two ways to hedge the stock against greater-than-20% drops from its current price over the next several months.

**Why Consider Hedging Against A >20% Drop**

A twenty percent decline threshold is worth considering here, because it lowers the cost of hedging somewhat (all things equal, the larger the potential loss you are looking to hedge against, the less expensive it is to hedge), and because a 20% decline is not necessarily an insurmountable one. To recover from a 20% loss, an investor would need a 25% rebound in his stock. But to recover from, say, a 35% drop, would require a rebound of nearly 54%.

**Two Ways To Hedge WNR**

The first way uses optimal puts*; this way has a cost, but allows uncapped upside. These are the optimal puts, as of Tuesday's close, for an investor looking to hedge 1,000 shares of WNR against a greater-than-20% drop between now and June 21st:

As you can see in the screen capture above, the cost of those optimal puts, as a percentage of position, is 5.14%. By way of comparison, recall that the recent cost of hedging the SPDR S&P 500 ETF (NYSEARCA:SPY) against a smaller (15%) decline was less than 1%.

A WNR investor interested in hedging against the same, greater-than-20% decline between now and June 21st, but also willing to cap his potential upside at 15% over that time frame, could use the optimal collar** below to hedge instead.

As you can see at the bottom of the screen capture above, the net cost of this optimal collar is negative - that means that the WNR investor would be getting paid to hedge in this case.

**Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor uses an algorithm developed by a finance Ph.D to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones.*

***The algorithm to scan for optimal collars was developed in conjunction with a post-doctoral fellow in the financial engineering department at Princeton University, and is currently available on the web version of* *Portfolio Armor.*

*The screen captures above come from the latest build of the soon-to-come 2.0 version of the* *Portfolio Armor iOS app**. Optimal collar capability will be available as an in-app subscription in the 2.0 version of the app.*