Hedging against coronovirus drawdown

So, signs point that coronovirus outbreak is going to hurt many companies Q1 earnings bigly in a few months.

Thinking of maybe buying some puts, just in case. Long time investor, first time option trader. Any of you thinking of doing the same and what options would you recommend?

Or are you praying that central banks will print enough cash to keep the market afloat this time again?

Hi, So we are not market timing :smile: just keeping our asset allocation flat and staying invested. There is no evidence that we can time market downturn, or any virus outbreak previously had a negative effect on market returns.

If you are getting worried with the news, it’s a sign that your asset allocation is not matching your risk profile. I suggest you allocate larger portion to cash or metals.

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The time value and the expiry date are tricky. IMHO, options are an expensive kind of insurance.

They are already carpet-bombing markets with liquidity (nice expression not invented by me). As usual the SNB should be at the forefront with direct stock purchases. We will see last monthly results in a few days…
Plus you have the “robinhood traders” (or “tiktok traders”) who will support the markets at any price, with margin, and with their parents’ credit cards if needed. They are as sensitive to the coronavirus as to stock valuations (that is, not at all :wink:).
So, don’t worry!

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Actually, if you compound the risk of a market downturn and of central banks printing too much cash trying to keep markets afloat, you can remove “cash” from the list.

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Eh, in hindsight, I should’ve bought the puts when I called it! Still thinking of buying them now to hedge against further meltdown. A -10% oom put costs only around 1% / Q to carry. That’s relatively cheap compared to last year’s 20-30% rise. And I’d guess things will get sorted out in 1-2 Q.

Heads up - applying for options trading permissions can take up to a week depending on your broker!

If you have bought puts on Chinese stocks, it wouldn’t’ be a great deal. I’m not sure though if they even sell puts for Chinese internal market stocks.

I wouldn’t be so sure about that. Puts can increase in price just due to volatility increase no matter which way the underlying goes, and it’s been a crazy week on markets.

And even if they go to zero, still, paying some 1% for a bit of certainty in uncertain times - i wouldn’t call that a bad deal.

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