8 Minute Read

How to add Insurance to your Portfolio

December 8, 2014

By | 5 Comments

Protect your portfolio against the next market crash. Get the Bear Market Survival Guide.

Last update: July 2021

As a trader I always think in terms of probabilities. What is more probable right now, in this time frame and I trade with that probability. It is for this reason and this reason alone I am slightly bearish on the market right now and short the RUT.

If you trade in a 401k or an IRA you are most likely only long. This could be long stock, long mutual funds or ETFs but you are most certainly…long. This is a problem as there is more downside risk right now in the market. Let’s work through the problem with an analogy.

Let’s say you own your own home and on our homes we pay insurance. If we were not forced to buy insurance monthly and there was zero risk of your house burning down, you would not buy insurance. There would be no need to. However, if tomorrow there was a 50/50 probability that your house would burn down and had the ability to buy insurance you definitely would. In the market, there is a 50/50 probability of your house/portfolio burning down. In this video I discuss adding insurance to the portfolio.


Tackle Trading Resources on Portfolio Protection

Continue learning about this powerful options strategy: Portfolio Protection. From free articles to Premium System and Trading Playbook, Tackle Trading has all the resources you need to MASTER this strategy like a PRO.

Portfolio Protection For Beginners [Free Articles]

bear market survival guide
Beginner

Long Put: IWM or RUT

In this video tutorial, Coach Matt walks thru how he has been handling the additional macro risk in the market by trading Long Put options on the IWM.

Read More »

Bear Market Survival Guide [Premium System]

Any investor can survive stock market crashes by using The Bear Market Survival Guide because it includes Wall Street’s best-kept secrets for portfolio protection.


Tackle Trading Playbook [FREE for PRO Members]

PRO Members now have unfettered access to the Tackle Coaches’ personal playbook containing thirty-one powerful trading strategies categorized according to the Options Greeks. Bullish, bearish, or neutral market conditions, this Playbook will help you dial up the right call more often and with greater confidence.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

5 Replies to “How to add Insurance to your Portfolio”

  1. Denna Dean says:

    I took this advice and happily so last week :). Thank you for it because I got worried last week! It’s my first year of trading. Bought some 185 Dec14 SPY Puts. Now it’s worth half the value though. Do I sell this back? Do I treat it as traditional insurance and let it expire like worthless in order to keep the protection throughout the year? Maybe sell some Puts against to collect some income and offset my costs? What a good play to have happen now?
    Groovy,
    Denna Dean

  2. Tim Justice says:

    Hi Denna,

    If you’re trying to keep it simple – which is a good idea – then approach the puts as traditional insurance. If you’re looking to get creative then you can add legs either to turn the trade into a vertical or ratio spread. But that’s only if you know how that will effect your underlying risk and position.

    Cheers,

    Tim

  3. Denna Dean says:

    Well I have some covered call on right now that have now turned ITM with an Oct5 exp. If I’m assigned then I won’t any underlying risk. I know how to do a vertical and sell a put against it but I don’t know how to do a ratio spread. I’ll look that up. But since I haven’t paper traded the ratio spread I may keep it simple and let it expire worthless unless I have success paper trading one before it expires in Dec. Thank you!

  4. ZACCHEUSLLOYD says:

    I love the visuals: buying at the money protective puts, then seeing the risk graphs. Very important information, thanks for sharing!

    1. Tim Justice says:

      Glad you are enjoying them Zac!

Comments are closed.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.