10 Minute Read

Tackle Today: Subtraction > Addition

September 30, 2021

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≈ Two Ways to De-Risk Your Portfolio. ≈


Phoenix leader here. Suppose the recent market tantrum has you fearing October will bring more tricks than treats. The S&P 500 has made a lower pivot high and is now submerged beneath the 50-day moving average. Distribution days are beginning to mount, and institutions are leaning on the sell button. Your caution is more than warranted.

So what are you going to do about it?

If you’re an active trader with a portfolio full of shorter-term swing/position trades, then you might be feeling the urge to de-risk your account. In other words, cut your deltas, reduce exposure, and get smaller.

There are two ways to do this: subtraction or addition. The first is easiest and involves closing existing bullish positions. Maybe not all of them, but some. You might start with those that are closest to profit targets. Then look at those that are moving back to breakeven. Consider too the stocks that now have the ugliest charts and thus the lowest odds of success. You could use other logic, but these three areas are arguably the easiest positions to trim.

The second path doesn’t require you to exit any existing trades at all. Instead, you’re cutting risk by adding portfolio protection or hedges. It’s more difficult because you’re increasing the number of trades you have to juggle. In turn, you have to wrestle with additional questions like which strike price, expiration month, and trade structure to use. Do you sell covered calls, buy puts, or put spreads. Do you hedge part of your exposure or all of it? How do you manage the hedge if the market rises, falls, or stagnates?

It’s not to say you can’t take the addition route. It is to say that it’s quite a bit more complicated.

And that, more than anything, is why I led Team Phoenix down the subtraction path this week.


Chart of the Day

When the Greenback Gets Goosed

Yesterday we pointed a finger at rising interest rates for causing the stock swoon. Today we turn our sights to the dirtbag that’s driving precious metals into the ground: the U.S. Dollar. In case you missed it, the Dollar ETF (UUP) broke out in a big way this week. 

Video of the day

Trade Masters

Join Coaches Greg Holmes and Mark Justice for another edition of Trade Masters.

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Cash Flow Club 8:30 PM EST

Join Tyler Craig as he hosts the weekly Cash Flow Club.

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