[Round 3 Answer] Ways to hedge your stock portfolio to reduce market risk

Moomoo Learn joined discussion · Apr 18, 2022 02:58

Hi, mooers! We are about to reveal the answers! Are you excited?

More than 170 mooers have actively participated in our Easter Contest Round 3. You're so genius. Thank you for sharing your answer and valuable insights.

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[Easter Contest Round 3 Answer Announcement ]

1. (b) Arbitrage
2. (a) Hedge
3. (a) Sunk Cost

After reading the inspiring comments, we've found that one of the most enthusiastic feedback from mooers is to learn how to hedge positions.

Options were originally designed as a hedging tool. We'd like to introduce some option strategies to you.

1. What are options?

An option is a contract that gives its holder the right to buy or sell a specific security on a specific time at a specific price.

[Round 3 Answer] Ways to hedge your stock portfolio to reduce market risk

2. How to use options for hedging?

Suppose that you have long-term stock holdings. Here are two hedging strategies when facing a hit.

If you think the stock that you hold will plummet, buy a put.

- Buying a put means you need to pay a premium for a contract.
- The maximum potential loss for buying a put is the premium paid. If you think the stock you hold will go down, buying a put helps limit the loss.

Tab to know more
- What are the basics?
- Why trade it?
- How to start?

If you think the stock you hold will fall slightly, sell a call.

-Selling a call indicates that the call option seller expects the options to become worthless at the expiration date.
-Selling a call option may give you a chance to collect a premium income in the future. The premium income could help increase returns.

Note: A covered call is a simple trading strategy that combines holding a stock with selling call options.

Tab to know more
- What are the basics?
- Why trade it?
- How to start?

3. Perks of trading options on moomoo

Moomoo is a credible platform catered to traders that provide:
- Affordable commissions for option trading
- US option real-time quotes for free
- Self-developed option price calculator for analysis
- Profit and loss details to evaluate your profit and loss strategies

Have you taken strategies to hedge the potential downside risks? Comment to let us know!

[How to win the prize?]

Follow @moomoo Learn and @moomoo Event

Go to the #Easter Contest: How to Find the Secret of Building Wealth and share your insights.

Participants will get a points reward, and those who post insightful content will have the chance to get one free $SNDL Inc(SNDL.US)$ .

Review the Easter Contest Round 3.

The winner lists will be announced soon.