MarketBrace

Protecting Portfolio of Stocks from Big Market Drop

Wise investors realize that in the long term, investing in stocks is superior to other types of investment such as fixed income
However, from time to time, stock markets drop precipitately; in days or weeks
Now may be such a time - due in part to the extremely large investments in AI which have driven the markets to new highs
We will show that with just a few inputs, investing in stock option puts can provide a reasonably priced hedge (form of insurance for an investment), for example:
protecting 70% of your portfolio even if “the market“ has a 50% drop
Think of this as financial insurance. With this hedge you pay a smaller amount("the premium") to protect a much more valuable asset from a significant loss

Inputs

Portfolio Value under consideration (e.g. 1,000,000):
Desired amount of protection (for example “I can function if the portfolio retains at least this amount”):
Amount of Portfolio to Protect: 70% ($700,000)
Specify how large a market drop you want the hedge to protect against, e.g. 50%:
%
Select a timeframe. The longer the timeframe the more costly the 'insurance".
However you can repeat for addional timeframes when your timeframe has expired:

Results

Purchasing put options on SPY at a cost of will protect at least of your portfolio for XX days.
Specifically, this would entail purchasing puts on SPY at a strike price of .
Alternatively, you can purchase longer protection at increased cost if that better suits your needs.

For of insurance provided by the hedge, you would save

What will actually happen?

What will happen will depend on the actual market drop, if any.
This can range from no drop (0%) to conceivably 90% or more.
The following table shows the how much would remain in your portfolio without a hedge and how much would remain if you purchased a hedge at a cost of .

What's to come?

How might you decide whether or not to purchase such a hedge?
The previous table shows what the results would be “IF”… that is depending on the actual market drop, which of course is UNCERTAIN.

The scientific way to make decisions under conditions of uncertainty is to estimate the 'expected' result, which means that if you make decisions using this approach many times, the average of the results would converge to the 'expected' value.

A forthcoming version of MarketBrace will use Artificial Intelligence to compute the expected value of the benefit of the hedge under consideration to help decide on whether or not to purchase such a hedge.

Disclaimer

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Important Notice: Please Read Carefully

This software is provided for informational and administrative purposes only and does not constitute financial, investment, tax, or legal advice. The stock options data, valuations, and projections presented within this platform are based on user inputs and publicly available information and may not reflect real-time market conditions or individual financial circumstances.

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Market Risk
Stock options are subject to market risk and may lose value. Past performance is not indicative of future results.
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