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Tackle Today: This is How You Play Defense

December 16, 2022

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«3 Ways to Reduce Exposure.»


Coach Tyler here. This week’s swoon officially turned the daily trend of all major U.S. indexes lower. In a bear market, you ignore support breaks at your peril. Yesterday, I suggested dusting off the bear playbook and playing defense.

Playing defense means reducing the risk or exposure in your portfolio. There are many ways to do this.

  1. Exit some old bull trades that no longer look as rosy as when you first entered.
  2. Adjust or hedge existing bullish positions. Sell or roll down covered calls on stock positions. Sell calls or bear calls against short puts or bull puts.
  3. Enter new bear trades to ratchet your exposure down further.

Each trader must decide to what extent they respond when trends turn and support breaks. Experience has taught me that getting smaller early in the rollover (i.e., yesterday because it was the first support break) gives you far more flexibility in the late stages of a downtrend or selloff when it makes sense to add back exposure.

You can’t get big at the end of a downturn if you don’t get small at the beginning.

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