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A Way To Play DUST Without Getting Dusted

A Way To Play DUST Without Getting Dusted

The Direxion Daily Gold Miners Bear 3x Shares ETF (NYSEARCA:DUST) jumped 10.66% Wednesday, in an example of how fast the 3x levered ETF can move. For investors considering using it to bet against gold miners, but wary of downside risk, below is a way you can get paid to limit your downside risk.

Hedging With A Negative Cost Optimal Collar

Pays you to hedge, 20% upside cap.

If you're willing to cap your potential upside at 13% between now and December 20th, this is the optimal collar to hedge 1000 shares of TLT against a greater-than-13% 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 negative, meaning you would have gotten paid to hedge in this case.

Possibly More Protection Than Promised

In some cases, hedges such as the ones above can provide more protection than promised. For a recent example of that, see this post about hedging shares of the SPDR Gold Trust ETF (NYSEARCA:GLD).

*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.