Friday, July 29, 2011

If you must stay in this market you need to create a long / short portfolio.

If you think you are diversified because you own foreign stock, foreign currencies, bonds or treasuries- you absolutely are not!

If you are on margin lower that amount, if you can’t, you NEED to use a good percentage of that margin on short ETF funds and puts.

Make sure you have at least 30% of you margin account in a defensive position.

Short ETF funds that go up in value as the market crashes are going to be the only thing that is going to keep you account from getting debilitating margin calls that can decimate your trading account and your finances.

Puts on the averages or on some of your specific stocks are a must as well, but I prefer to have inverse ETF funds as they don’t expire. In good times, as your portfolio increases you should add funds to your short ETF.

Leveraged inverse ETF funds can be lifesavers but the problem is they suffer from slippage in fast moving markets that go up and down on a daily basis.

A simple solution for this has been selling calls on a portion of these funds when they gain large returns might be the way to go. I don’t recommend using calls in a bull market on these inverse ETF’s as you don’t want to be negate your insurance policy on your margin.

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