If 2020 has taught us anything so far, it’s that anything can happen.
No one expected the stock market to drop 35% in just three weeks…
Just like no one could have predicted a 35% recovery over the following two months.
And the truth is, as traders…
We need to be prepared for the worst.
That’s where a hedge comes into play.
See, a hedge is a trade that can protect your account from losses if the market doesn’t go your way.
For example, say you have $100,000 worth of stock in your portfolio.
Obviously, we all want the market to go up…
Because that’s how we get our money to make even more money.
But, as we’ve seen, things don’t always go as we’d like them to…
And in order to protect ourselves, we can take a couple thousand dollars and buy some put options.
Now, put options are basically a bet that the market is going to go down.
… But for our purposes, they’re really like a safety net that can catch us if the market starts to fall.
See, once you’ve bought those put options, one of two things can happen…
Either the market will go up, in which case those put options will become worthless, and we’ll be out a couple thousand dollars.
But we don’t mind, because we made a lot more money on our stocks that have continued to rise in value.
Of course, the other scenario is that the market goes down.
Let’s say the market falls 20% just for simplicity.
Now, your portfolio that was worth $100,000 is only worth $80,000…
But those put options are likely worth anywhere from $15,000 to $25,000…
Which means we’ve basically offset the loss we took on our portfolio.
See how a hedge can help protect your money in the event of a downturn?
Now, I actually just put a hedge on my own personal account by buying some put options on the SPY…
Check out the video above to find out more details if you’re interested.
And, if you’d like to learn more about my method for finding high-probability, low-risk stock trades and easy option plays that routinely hand my Insider Report members triple-digit profits…