Advisors unfamiliar with the nuances of options are ill advised to gain experience using client funds. A better choice may be to research managers with a track record of successful hedging strategies and delegate the allocation.
In summary, a hedged option strategy can provide meaningful benefits:
Hedging can provide the confidence to keep clients invested.
Clients are more likely to stay invested if they know there is a floor to potential losses.
In a severe correction, the protective puts provide cash at a time when prices on the underlying portfolio are depressed, which creates a "buy low, sell high" opportunity.
Advisory revenue is better protected in the event of another significant correction.
Larry Kriesmer, CLU, ChFC and Bernard Surovsky, CFS, are the investment managers of Measured Risk Portfolios, available through Kingsroad Financial Insurance Services, Inc., a Registered Investment Advisor. To request performance information or inquire about selling agreements, please contact the authors at [email protected].