38 min
Adding Downside Buffers to Investment Portfolios Using Options Broken Pie Chart
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- Investing
Welcome to the Broken Pie Chart Podcast Episode 6 Adding Downside Buffers to Investment Portfolios Using Options. In this episode Derek Moore is again joined by Jay Pestrichelli, founder of ZEGA Financial and co-author of the book Buy and Hedge to discuss using options to create positions which control but don’t own shares of stock market indexes. These positions have the goal of providing upside greater than the market while installing a downside buffer down to a certain level in case markets sell off. Also discussed is the idea of using fixed income as a funding source via dividends to pay for long stock ownership. This switches the risk from an un-buffered long stock profile to more of a short duration high yield fixed income risk profile.
Key Takeaways:
• What are long stock portfolios with embedded downside buffers? • How are options utilized to reduce risk by building a synthetic long stock position? • Targets of utilizing a Buffered Index Growth strategy include greater upside participation. • Targets also include not participating in the first roughly 25% down moves in markets thus providing a buffer. • Understanding frequency and size of downside market moves. • Why everyone doesn’t adopt a Buffered Indexed Growth strategy • How a portfolio has the goal of shifting from a stock risk profile to a fixed income risk profile. • How short duration fixed income (bonds) can perform in various market conditions • Why losing less in a stock portfolio leads to potentially growing more over time • Those within 10 to 15 years of retirement may need more growth but can’t take more un buffered, un hedged equity risk • Bonds usefulness at low interest rates in portfolios may not be as helpful as they once were
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2xcfeZv
Welcome to the Broken Pie Chart Podcast Episode 6 Adding Downside Buffers to Investment Portfolios Using Options. In this episode Derek Moore is again joined by Jay Pestrichelli, founder of ZEGA Financial and co-author of the book Buy and Hedge to discuss using options to create positions which control but don’t own shares of stock market indexes. These positions have the goal of providing upside greater than the market while installing a downside buffer down to a certain level in case markets sell off. Also discussed is the idea of using fixed income as a funding source via dividends to pay for long stock ownership. This switches the risk from an un-buffered long stock profile to more of a short duration high yield fixed income risk profile.
Key Takeaways:
• What are long stock portfolios with embedded downside buffers? • How are options utilized to reduce risk by building a synthetic long stock position? • Targets of utilizing a Buffered Index Growth strategy include greater upside participation. • Targets also include not participating in the first roughly 25% down moves in markets thus providing a buffer. • Understanding frequency and size of downside market moves. • Why everyone doesn’t adopt a Buffered Indexed Growth strategy • How a portfolio has the goal of shifting from a stock risk profile to a fixed income risk profile. • How short duration fixed income (bonds) can perform in various market conditions • Why losing less in a stock portfolio leads to potentially growing more over time • Those within 10 to 15 years of retirement may need more growth but can’t take more un buffered, un hedged equity risk • Bonds usefulness at low interest rates in portfolios may not be as helpful as they once were
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2xcfeZv
38 min