The High Cost of Hedging

Many people are desperately trying to protect themselves against the risk of a serious stock-market pullback. Of course, we could have said that continuously since the middle of 2009. The easiest and most commonly used vehicle for hedging risk is the purchase of index puts.

Figure out the approximate size of your portfolio, divide by the value of an S&P 500 contract and you'll know how many puts to buy to offset a specific percentage drop. At last week's closing quote of $180.94, the cost of an 'at the money' $181 SPY put, with a June 21, 2014, expiration date, was $8.42 per share....284 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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