Market Commentary, Research
Joe Tigay

In the ever-unpredictable world of investing, maintaining a diversified and patient approach is key to achieving long-term success. To mitigate market risk, financial advisors are increasingly turning to hedged equity and other innovative financial instruments. This blog explores the benefits of incorporating hedged equity into portfolio management and highlights the role of volatility futures, such as SPIKES futures, in protecting portfolios from market volatility.

Why Hedged Equity Matters:

  1. Reduced risk: Hedged equity employs various financial instruments, such as options, index futures, or short selling, to minimize exposure to market risk. This approach acts as a safety net during market downturns, protecting investments from substantial losses.
  2. Potential for increased returns: By utilizing hedging strategies, investors can capture market gains while limiting potential losses. This approach enhances the overall return on investment compared to a traditional stock portfolio.
  3. Diversification: Hedged equity serves as a valuable addition to a diversified investment portfolio. By incorporating different assets and strategies, investors can mitigate risk and increase the likelihood of achieving their financial goals.

Considerations for Investment Advisors:

  1. Market volatility: The constant fluctuations in the stock market pose challenges for investors. Hedged equity offers a way to minimize the impact of market volatility and safeguard portfolios from significant losses.
  2. Risk tolerance: Each investor has a unique risk tolerance level. Hedged equity provides a suitable option for those seeking to reduce risk while maintaining reasonable potential returns.
  3. Diversification: Concentrated portfolios are inherently riskier than diversified ones. Hedged equity enables investment advisors to diversify portfolios effectively, thus reducing overall risk exposure.

Harnessing Volatility Futures:

  1. Understanding volatility futures: Volatility futures, including SPIKES futures, allow investors to bet on the future direction of volatility. As market volatility increases, the value of these futures rises, enabling investors to profit from volatility and safeguard their portfolios.
  2. The role of SPIKES futures: SPIKES futures are specifically designed to hedge against market volatility. Based on the SPIKES Index, which measures implied volatility in the S&P 500 ETF SPY, these futures provide an effective means to protect portfolios from potential losses.

Conclusion: In today’s unpredictable investment landscape, hedged equity and volatility futures play a crucial role in protecting portfolios from market volatility and minimizing risk. As an investment advisor, incorporating hedged equity strategies and understanding volatility futures like SPIKES futures can help you guide your clients towards achieving their financial goals.