With Microsoft Near A New High, 2 Ways To Hedge
1) Hedging With Optimal Puts
Has cost, but uncapped upside.
These are the optimal puts*, as of Monday's close, to hedge 1,000 shares of MSFT against a greater-than-19% drop between now and January 17th.
As you can see at the bottom of the screen capture below, the cost of this protection, as a percentage of position value, was 2.26%.
2) Hedging With A Negative Net Cost Optimal Collar
Pays you to hedge. 12% upside cap.
If you're willing to cap your potential upside at 12% between now and January 17th, this is the optimal collar to hedge 1,000 shares of MSFT against a greater-than-19% drop over the same time frame.
As you can see at the bottom of the screen capture above, the net cost of this collar was (slightly) negative, meaning you would have gotten to paid to hedge in this case.
Possibly More Protection Than Promised
*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 PhD to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones.
**Optimal collars are the ones that will give you the level of protection you want at the lowest net cost, while not limiting your potential upside by more than you specify. The algorithm to scan for optimal collars was developed in conjunction with a post-doctoral fellow in the financial engineering department at Princeton University. The screen captures above come from the Portfolio Armor iOS app.