Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

How to Protect Your Stock Market Portfolio Profits From a Crash

Portfolio / Financial Crash May 30, 2013 - 06:28 PM GMT

By: Money_Morning

Portfolio

Tim Melvin writes: Thanks to billions of dollars in quantitative easing from the U.S. Federal Reserve, fears over a looming stock market crash have been put on hold lately.

The Standard & Poor's 500 Index is up 16% this year. The market's outstanding performance has shrugged off weak earnings reports, slowing growth in China, and continued weakness in Europe.


It seems that zero interest rates really do trump all. Even Warren Buffett is unsure how all this ends, telling shareholders at the Berkshire Hathaway (NYSE: BRK.A, BRK.B) annual meeting "it's really uncharted territory. It's a lot easier to buy things sometimes than it is to sell them."

And I recently heard legendary real estate investors who at a conference compared the market to a game of musical chairs where everyone keeps playing because the music - QE - is still going.

But they cautioned that investors who aren't careful will be quickly left without a seat.

That's why investors should take steps to protect their portfolio from a possible severe decline in prices. Whether it's a stock market crash or a more mild price pullback, you always want to make sure you're prepared.

How to Protect Your Profits from a Stock Market Crash

It's time to sit down and go through your holdings stock by stock and ask some key questions:

  • Is the reason you bought the stock still true?
  • Do you have stocks that have experienced strong gains and now sell at very high valuation based on earnings, sales, and asset value?
  • Has the company's business or financial position changed for the worse since you bought the shares?
  • Would you buy the stock again today at the current price?

This type of prudent pruning can help you accomplish two things that will help protect you against losses from a market crash or sell off.

First, getting rid of overvalued stocks and underperforming companies will reduce your overall exposure to the market. Increasing your cash holdings may lower your return in the short term, but cash does not decline in a sell off.

It also gives you dry powder in your arsenal that can be used to scoop up bargain issues after a steep decline.

If you want more protection than pruning provides, you can buy insurance against the decline; here's one way to do that...

Using put options on the S&P 500 Spyder Exchange Traded Fund (NYSE: SPY) gives you "stock market crash insurance." You can even pick your own deductible based on how much risk you feel you can endure.

If you are worried about a decline in the market of more than 10% or so, you can buy a put option at $150 on the SPY that expires in January 2014. Each contract will cost you about $378 or about 2% of face value. If the SPY falls below 150, the puts will rise in value protecting you against steep losses.

Each contract represents roughly $16,000 of market value right now so you will need seven contracts for every $100,000 of portfolio value for full protection. If you want a longer term insurance policy, you can buy the same option for about $676, or 4.5% of face value that expires next June.

If you prefer more protection, you can protect against a loss of greater than 5% by purchasing options with a strike price of $157. This will cost about $550 for each January contract.

Just like all insurance policies you buy, the more protection you want, the higher premiums you pay for coverage. If the stock market falls you will enjoy the offsetting gains in the put options to keep your portfolio value relatively steady.

Of course if it does not, you lose the premiums paid just as you do with auto or homeowners insurance.

For more ways to keep your portfolio protected from a stock market crash, check out what our Private Briefing investment service members have been using...

Reading You Can't Miss: Five Reasons the Dow's New Highs Are "Bull-o-ney" and What to Do About It

Source :http://moneymorning.com/2013/05/29/how-to-find-stock-market-crash-protection-for-your-portfolio/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules