6 ms·

What's the best way to hedge against this, considering many of us have significant savings in the market? A few puts on SPY dated a year or two out?

lelanthran 3mo ago
What's the best way to hedge against this, considering many of us have significant savings in the market? I dunno. "The market can remain irrational longer than you can remain solvent"
gruez 3mo ago
>A few puts on SPY dated a year or two out? You think the hedge funds selling SPY options don't have this priced in already? Of course, you can still make money on this bet, just like you can win money at a roulette table, but unless you think have some special insight that hedge/quant funds don't have, buying options should be negative EV.
- sitzkrieg 3mo ago
  agree, mostly true. always better to find a credit spread for your desired exposure
- someuser54541 3mo ago
  > but unless you think have some special insight that hedge/quant funds don't have Of course not, but it is a hedge, is it not? What would be your preferred hedge in this scenario?
- turbonaut 3mo ago
  The ask was not how to make money, it was how to hedge. I’d argue that it is very normal for hedging to be giving up expected value in return for a reduction in volatility of returns. If you have a lot of exposure to the market already one could say not buying the option is more akin to roulette.
- quickthrowman 3mo ago
  Options market makers have no idea where the S&P will be in one year, options are priced on the current implied volatility. The bid and ask will be slightly lower and higher than the true current option price so the MM can make their nut on the spread and then hedge so they’re delta neutral. If you buy a put you are making a bet that realized volatility will exceed implied volatility. This may or may not happen and there’s no way to predict the future.
steve1977 3mo ago
Gold maybe? (no investment advice)
bsimpson 3mo ago
It's tempting to sell a bunch, but then you've got cash. What do you do with cash when the government keeps printing money and assets are all overpriced?
cmiles8 3mo ago
Stay well diversified, keep investing each month, and take a nap. There are almost surely severe bumps ahead for the AI space and that will likely spill over into the broader market. But unless you’re retiring in the next few years don’t worry about it. You can’t time the ups and downs and the only proven strategy is to just keep investing in a broad indexed portfolio and just ride out. You’ll take a short term hit but also end up buying on the dip because you don’t stop investing.
- someuser54541 3mo ago
  I suppose I'm just a little worried about a 10 year sideways market. The run-up has been absolutely insane the past year...some graphs are just a literal straight line up. I didn't get to participate in much of that and concerned the prevailing wisdom on these larger timescales may no longer hold true.
  - fny 3mo ago
    If you didn't participate in it, what are you hedging?
    - magicalist 3mo ago
      > If you didn't participate in it But that's not what they said? >> I didn't get to participate in much of that
    - kazinator 3mo ago
      I would guess, longer positions held from before the past year to date period. (As for me, I'm just hedging my rhetorical front lawn.)
  - jryan49 3mo ago
    Stocks are long term investments, 10yr+ So you should expect the possibility of a sideways market.
    - 3mo ago
moduspol 3mo ago
I thought that a year or two ago. Thankfully I did not. I have no idea how long the music will keep playing.
arielcostas 3mo ago
Wouldn't it be wiser to get out of the market into fixed rate assets like government bonds? Maybe have some into puts on SPY (or QQQ since tech would probably have bigger losses) too, but mainly getting out of long positions on what seems a really overvalued stock market
- nsagent 3mo ago
  Wouldn't it be wiser to get out of the market into fixed rate assets like government bonds? I did that earlier this year ahead of the April earnings reports. I was a bit too early to the punch, but I prefer that versus being too late. I just hope the companies aren't considered too big to fail. Bailing them out would be a bad idea. https://www.openmarketsinstitute.org/publications/no-bailouts-for-big-tech-billionaires-policies-for-when-the-ai-bubble-bursts https://www.openmarketsinstitute.org/publications/no-bailout...
  - CamperBob2 3mo ago
    I just hope the companies aren't considered too big to fail. Bailing them out would be a bad idea. They will be. When the SHTF, you'll see Rubio in the room^H^H^H^H circus tent, sitting right next to Bessent, arguing that propping up OpenAI is as much a national security interest as bailing out GM was.
the__alchemist 3mo ago
#1: Great question, and I would love to hear the answers (And am learning from the ones posted) #2: What I've done so far: Haven't bought stock in a year. Have moderate short positions on Palantir, SpaceX, and Tesla. Have big short positions in the most popular Quantum computing companies. (Scams IMO). I have sold most of my positions ("profit taking"?) in stocks which have gone up a lot in the past year. (Nvidia, Broadcom etc), and am no longer using margin; about 1/3 of my brokerage value is now "cash", generating ~3% interest.
glaslong 3mo ago
Bet on Chinese tech sector to eat everyone's lunch with cheaper, faster, smaller, open-weight models?
pid-1 3mo ago
Hold short term debt (e.g money market funds or SOFR ETFs). Then you will have cash in hand if either stocks fall or yelds raise. Never buy derivatives as a non institutional investor.
- georgeecollins 3mo ago
  100% this is great advice!
- marojejian 3mo ago
  Why should a retail investor never buy derivatives? spreads?
  - dboreham 3mo ago
    Not the parent but I'm guessing: a) it's expensive and b) you can shoot your feet off.
    - miningape 3mo ago
      [dead]
  - baal80spam 3mo ago
    It's all about getting a call from the dreaded Margin.
  - pid-1 3mo ago
    Retail investors do not have access to systems that calculate risk, margins, pnl, etc... and generally also don't have the necessary knowledge and market data to price such instruments correctly. Most ppl are better off KISSing and lowering risk by selling equity for fixed income.
    - jurgenburgen 3mo ago
      Ironically you can use AI tools to get some idea of how to trade puts.
linsomniac 3mo ago
Reminder: Serious people have been predicting a market crash "within the next 3 months" for 3 years now. In that time, the "market" has gone up around 70% (66%-86% depending on the what part you are looking at). A friend of mine and I go out to lunch every 3 months and talk about, among other things, investing. We've made a trope of it, calling out the people who are predicting an imminent market crash every time we have lunch. I'm not saying that it doesn't look like it's going to crash, but I'll also say that there's also a very sizeable downside potential for getting out of the market.
- hnisnotbenign 3mo ago
  [flagged]
inigyou 3mo ago
Just sell all your ETFs and buy them again when the market goes up or down. You're very likely to lose money with options and you will definitely lose a lot of money if you buy enough options to hedge your full exposure.
- deleted 3mo ago
  [deleted]
- jr3592 3mo ago
  And risk missing out on the gains in the market that can and likely will happen between then and now. Most researchers have shown that attempting to play the market is likely to fail in the end. Set it and forget it. Ride the wave.
  - inigyou 3mo ago
    You will definitely lose less in opportunity cost than the actual cost of hedging your position, because hedging is extremely expensive and cancels out almost all gains. If it was cheap, everyone would do it.
- chasd00 3mo ago
  unless you're doing this in an IRA or your 401k remember the IRS wants its cut of any gains you may lock in. That's a painful check to write let me tell you.
chasd00 3mo ago
> What's the best way to hedge against this, considering many of us have significant savings in the market? honestly, if you're >= 10 years away from needing that money (retirement or whatever) then the best hedge is to ignore the news and just keep contributing to your investment as always. I got caught up in a couple moments (tarif drama April before last was one) where i panicked and sold and then it only took a few months to get back to even meanwhile 18% of my capital gains were now due to the taxman. I wrote a check to the IRS for 10's of thousands for no reason except over reacting and ignoring every financial advisor's advice. if you're going to need your investment money within 10 years then you need to get advice on how to start reducing risk (and therefore reward) because you don't have time to survive and repair from a crash.
- icedchai 3mo ago
  I knew guys who panicked in Feb 2020, at the start of covid. They moved everything to cash, never got back into the market. Things recovered faster than they thought. The unfortunate truth is they would've more than doubled their money if they stayed invested.
ashtonshears 3mo ago
I am not a financial advisor. Assuming you are the average person, and not a financial professional, using actual financial hedging instruments properly is unlikely, and far more likely to just increase risk and lower expected return. A realistic way for an American citizen to reduce risk in the current market is to have a globally diversified portfolio that under-allocates to the US.
brianwawok 3mo ago
So you want to pay back the gains you make for the next year or two? Sounds like a good strategy
duxup 3mo ago
Is there really any answer to this kinda thing other than having a diversified portfolio and just riding it out?
fakedang 3mo ago
Dogs of the Dow
DANmode 3mo ago
> savings > market These are two different things. Because there are instruments that make market exposure easier, doesn’t make market exposure correct 100% of the time.
nunez 3mo ago
Bogleheads would say to stick to a three headed portfolio, maybe a bit more biased towards bonds. So that's what I'm doing.

lelanthran 3mo ago

What's the best way to hedge against this, considering many of us have significant savings in the market? I dunno. "The market can remain irrational longer than you can remain solvent"

gruez 3mo ago

>A few puts on SPY dated a year or two out? You think the hedge funds selling SPY options don't have this priced in already? Of course, you can still make money on this bet, just like you can win money at a roulette table, but unless you think have some special insight that hedge/quant funds don't have, buying options should be negative EV.

sitzkrieg 3mo ago
agree, mostly true. always better to find a credit spread for your desired exposure
someuser54541 3mo ago
> but unless you think have some special insight that hedge/quant funds don't have Of course not, but it is a hedge, is it not? What would be your preferred hedge in this scenario?
turbonaut 3mo ago
The ask was not how to make money, it was how to hedge. I’d argue that it is very normal for hedging to be giving up expected value in return for a reduction in volatility of returns. If you have a lot of exposure to the market already one could say not buying the option is more akin to roulette.
quickthrowman 3mo ago
Options market makers have no idea where the S&P will be in one year, options are priced on the current implied volatility. The bid and ask will be slightly lower and higher than the true current option price so the MM can make their nut on the spread and then hedge so they’re delta neutral. If you buy a put you are making a bet that realized volatility will exceed implied volatility. This may or may not happen and there’s no way to predict the future.

steve1977 3mo ago

Gold maybe? (no investment advice)

bsimpson 3mo ago

It's tempting to sell a bunch, but then you've got cash. What do you do with cash when the government keeps printing money and assets are all overpriced?

cmiles8 3mo ago

Stay well diversified, keep investing each month, and take a nap. There are almost surely severe bumps ahead for the AI space and that will likely spill over into the broader market. But unless you’re retiring in the next few years don’t worry about it. You can’t time the ups and downs and the only proven strategy is to just keep investing in a broad indexed portfolio and just ride out. You’ll take a short term hit but also end up buying on the dip because you don’t stop investing.

someuser54541 3mo ago
I suppose I'm just a little worried about a 10 year sideways market. The run-up has been absolutely insane the past year...some graphs are just a literal straight line up. I didn't get to participate in much of that and concerned the prevailing wisdom on these larger timescales may no longer hold true.
- fny 3mo ago
  If you didn't participate in it, what are you hedging?
  - magicalist 3mo ago
    > If you didn't participate in it But that's not what they said? >> I didn't get to participate in much of that
  - kazinator 3mo ago
    I would guess, longer positions held from before the past year to date period. (As for me, I'm just hedging my rhetorical front lawn.)
- jryan49 3mo ago
  Stocks are long term investments, 10yr+ So you should expect the possibility of a sideways market.
  - 3mo ago

moduspol 3mo ago

I thought that a year or two ago. Thankfully I did not. I have no idea how long the music will keep playing.

arielcostas 3mo ago

Wouldn't it be wiser to get out of the market into fixed rate assets like government bonds? Maybe have some into puts on SPY (or QQQ since tech would probably have bigger losses) too, but mainly getting out of long positions on what seems a really overvalued stock market

nsagent 3mo ago
Wouldn't it be wiser to get out of the market into fixed rate assets like government bonds? I did that earlier this year ahead of the April earnings reports. I was a bit too early to the punch, but I prefer that versus being too late. I just hope the companies aren't considered too big to fail. Bailing them out would be a bad idea. https://www.openmarketsinstitute.org/publications/no-bailouts-for-big-tech-billionaires-policies-for-when-the-ai-bubble-bursts https://www.openmarketsinstitute.org/publications/no-bailout...
- CamperBob2 3mo ago
  I just hope the companies aren't considered too big to fail. Bailing them out would be a bad idea. They will be. When the SHTF, you'll see Rubio in the room^H^H^H^H circus tent, sitting right next to Bessent, arguing that propping up OpenAI is as much a national security interest as bailing out GM was.

the__alchemist 3mo ago

#1: Great question, and I would love to hear the answers (And am learning from the ones posted) #2: What I've done so far: Haven't bought stock in a year. Have moderate short positions on Palantir, SpaceX, and Tesla. Have big short positions in the most popular Quantum computing companies. (Scams IMO). I have sold most of my positions ("profit taking"?) in stocks which have gone up a lot in the past year. (Nvidia, Broadcom etc), and am no longer using margin; about 1/3 of my brokerage value is now "cash", generating ~3% interest.

glaslong 3mo ago

Bet on Chinese tech sector to eat everyone's lunch with cheaper, faster, smaller, open-weight models?

pid-1 3mo ago

Hold short term debt (e.g money market funds or SOFR ETFs). Then you will have cash in hand if either stocks fall or yelds raise. Never buy derivatives as a non institutional investor.

georgeecollins 3mo ago
100% this is great advice!
marojejian 3mo ago
Why should a retail investor never buy derivatives? spreads?
- dboreham 3mo ago
  Not the parent but I'm guessing: a) it's expensive and b) you can shoot your feet off.
  - miningape 3mo ago
    [dead]
- baal80spam 3mo ago
  It's all about getting a call from the dreaded Margin.
- pid-1 3mo ago
  Retail investors do not have access to systems that calculate risk, margins, pnl, etc... and generally also don't have the necessary knowledge and market data to price such instruments correctly. Most ppl are better off KISSing and lowering risk by selling equity for fixed income.
  - jurgenburgen 3mo ago
    Ironically you can use AI tools to get some idea of how to trade puts.

linsomniac 3mo ago

Reminder: Serious people have been predicting a market crash "within the next 3 months" for 3 years now. In that time, the "market" has gone up around 70% (66%-86% depending on the what part you are looking at). A friend of mine and I go out to lunch every 3 months and talk about, among other things, investing. We've made a trope of it, calling out the people who are predicting an imminent market crash every time we have lunch. I'm not saying that it doesn't look like it's going to crash, but I'll also say that there's also a very sizeable downside potential for getting out of the market.

hnisnotbenign 3mo ago
[flagged]

inigyou 3mo ago

Just sell all your ETFs and buy them again when the market goes up or down. You're very likely to lose money with options and you will definitely lose a lot of money if you buy enough options to hedge your full exposure.

deleted 3mo ago
[deleted]
jr3592 3mo ago
And risk missing out on the gains in the market that can and likely will happen between then and now. Most researchers have shown that attempting to play the market is likely to fail in the end. Set it and forget it. Ride the wave.
- inigyou 3mo ago
  You will definitely lose less in opportunity cost than the actual cost of hedging your position, because hedging is extremely expensive and cancels out almost all gains. If it was cheap, everyone would do it.
chasd00 3mo ago
unless you're doing this in an IRA or your 401k remember the IRS wants its cut of any gains you may lock in. That's a painful check to write let me tell you.

chasd00 3mo ago

> What's the best way to hedge against this, considering many of us have significant savings in the market? honestly, if you're >= 10 years away from needing that money (retirement or whatever) then the best hedge is to ignore the news and just keep contributing to your investment as always. I got caught up in a couple moments (tarif drama April before last was one) where i panicked and sold and then it only took a few months to get back to even meanwhile 18% of my capital gains were now due to the taxman. I wrote a check to the IRS for 10's of thousands for no reason except over reacting and ignoring every financial advisor's advice. if you're going to need your investment money within 10 years then you need to get advice on how to start reducing risk (and therefore reward) because you don't have time to survive and repair from a crash.

icedchai 3mo ago
I knew guys who panicked in Feb 2020, at the start of covid. They moved everything to cash, never got back into the market. Things recovered faster than they thought. The unfortunate truth is they would've more than doubled their money if they stayed invested.

ashtonshears 3mo ago

I am not a financial advisor. Assuming you are the average person, and not a financial professional, using actual financial hedging instruments properly is unlikely, and far more likely to just increase risk and lower expected return. A realistic way for an American citizen to reduce risk in the current market is to have a globally diversified portfolio that under-allocates to the US.

brianwawok 3mo ago

So you want to pay back the gains you make for the next year or two? Sounds like a good strategy

duxup 3mo ago

Is there really any answer to this kinda thing other than having a diversified portfolio and just riding it out?

fakedang 3mo ago

Dogs of the Dow

DANmode 3mo ago

> savings > market These are two different things. Because there are instruments that make market exposure easier, doesn’t make market exposure correct 100% of the time.

nunez 3mo ago

Bogleheads would say to stick to a three headed portfolio, maybe a bit more biased towards bonds. So that's what I'm doing.