Defensive Strategies with Sales Options (Puts) and Volatility Trading allow you to optimize yields & risk in the downward phases of the Market.

It is also common to use several means, such as:

Decrease the percentage of risk assets in your portfolio

Stop the leverage of your risk position by canceling debt

Choosing lower-risk assets to integrate your portfolio

When we buy options (Puts), we pay a price (called a premium), and that price is all we can lose if the chosen time is wrong.

But options market is a complex one. No other market requires more knowledge.

Instead, you could try Volatility Trading. Firs of all, you have to stablish a target.

Lets assume that the target is S&P 500. You want to defeat the market, while taking less risks. Sounds impossible.

Now, focus on the limited universe of very liquid assets. The price should refletct the market value of these assets. So, the more volatile they are, more reward is expected. If not, investors would be stupids, and they are nothing but stupids.

If you invest in liquid & volatile stocks, with proper strategies, you can get more reward with less risk.

Just check this link:

When to start Defensive Strategies ?

The answer depends on the method of analysis you have chosen to decide your investments, such as aggressive strategies.

You can use technical, fundamental or academic analysis.

In the first two cases, you seek to find «expensive» and «cheap» levels, either in the general market or in certain assets in particular.

So you’ll be defensive when you identify «expensive» assets or are on a downward trend.

Instead, when you use the academic approach you give up trying to predict the market, and you only adapt to it.

Under this approach, we will be defensive when our RETURN & RISK indicate it.

Our attitude towards risk forces us to be cautious when the risk expected by the market increases (measured by implied volatility).

In addition, we must take defensive action when our risk capacity decreases.

This occurs when our previous yields have been negative, and we need to limit the risk of incurring higher losses.

You may be interested in the following items:

What is Algorithmic Trading?

How to measure the risk of financial assets?

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