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Buy put or sell calls on an asset that's highly correlated with the overall economy. This is honestly the least controversial claim the OP is making.

• onlyrealcuzzo 7y ago
  Correlations change. You never know if gold might tank along with assets in the next recession. Or if yields will tank along with assets in the next recession. What if there's just hyper inflation? No one knows what's going to happen... You can go with Dalio's claim that as long as you have 10 hedges that are sufficiently un-correlated, your risk is incredibly low. But even that might not hold up under future unknown conditions.
  • loftyai 7y ago
    You're absolutely right about the correlation changes. However, gold's correlation to the general market was developed organically by human behavior over time. That does often change during crisis. However, options contracts are a form of derivatives, meaning they are contracts financially engineered to hold a specific correlation. So, you can build perfect hedges using options contracts, which is what they were originally invented for. People just started betting on the markets with them, which created all kinds of risks in the market.
    • bob_theslob646 7y ago
      There is no such thing as a perfect hedge. Delta hedging is not perfect and cannot be done continually.