DOW at Record High; Are You Protected?

By George Leong, B.Comm. for Profit Confidential

The market appears to have another bull leg with the DOW and S&P 500 closing higher in seven of the last nine sessions to March 6. The blue chip stocks have been especially strong, with the DOW hitting a record close of 14,296.24 and intraday at 14,320 last Wednesday. The S&P 500 is also approaching its historical high.

With the advance, there are now questions regarding the sustainability, which you can read about in “Why Near-Term Prospects in the Stock Market May Be Limited.”

While the global economy is improving, the catalyst for the upward move in stocks has largely been the easy monetary policy worldwide that has resulted in a low-interest-rate environment and the search for alternative investments other than low-yield bonds.

So while all is fine now, I still sense a correction could be in the works, especially if the S&P 500 stalls.

You need to think about a viable investment strategy as a defensive posture. I firmly believe in having an investment strategy in place and adopting strong risk management to protect your investments.

One investment strategy would be to take some profits off the table, but then you may miss out on a potential stock rally.

A popular investment strategy to protect gains is the use of put options as a defensive hedge against market weakness. This strategy is called a protective hedge.

Under this investment strategy, investors may be somewhat bearish or uncertain and want to protect the current gains against additional downside moves in the stock or the market with the use of index put options.

For those of you not familiar … Read More