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Hedging Utilities At A 4 Year High

|Includes: Utilities Select Sector SPDR ETF (XLU)

Hedging Utilities At A 4 Year High

With the S&P 500 utilities sector at a 4 year high on Thursday, the Utilities Select Sector SPDR ETF (NYSEARCA:XLU) was extremely inexpensive to hedge. These were the optimal puts* to hedge 1000 shares of XLU against a greater-than-15% drop over the next several months:

As you can see at the bottom of the screen capture above, the cost of this protection, as a percentage of position value, was only 0.67%. Note that, to be conservative, Portfolio Armor calculated the cost of these puts using their ask price; in practice, an investor can often buy puts for a lower price (i.e., some price between the bid and ask).

*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 postdoctoral fellow at Princeton University's financial engineering department to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones. The screen capture above is from the Portfolio Armor iOS App.