Tail Risk Hedging, Strategies, And Examples
First a reminder: This week we started rolling out “strategy bundles”. They are meant to offer a basket of strategies in a specific instrument/ETF/future/asset class that are complementary. Check out our first bundle:
3 Beginner Strategies In SPY and ES (ETF and Futures)
Are you worried your stock portfolio will drop in value? Are you able to sit through a gut-wrenching 50% drop in your wealth? Are you a conservative trader/investor and want to trade returns for volatility?
If so, you might want to look at what tail risk hedging and strategies have to offer.
What is tail risk? What is a fat tail?
Tail risk is made popular by Nassim Nicholas Taleb. Put shortly, tail risk is this:
Tail risk is the probability of a loss (or profit) occurring due to a rare and unpredictable event. The chances of a “freak” event is higher than a normal distribution indicates (see chart below). Financial markets have fat tails.
How can you minimize tail risk and fat tails? We provide you with at least 6 different methods in our new article:
Tail Risk Hedging Strategies – What Is It? (Tail Hedge Examples)
Additionally, a few years back we wrote a shorter article about a similar topic:
What Are Negatively Skewed Trading Strategies?
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