Basic strategy (there are others): I own stocks in 100 chunk blocks. I then buy the exact same amount of -15-20% puts to cover my downside risk and simultaneously sell the same amount of ~+10-20% calls and use their premium to make the insurance free.
My portfolio value, if hedged perfectly and fully backed with cash is now locked to +/- ~20% (depending on IV) at little to no cost.
My portfolio value, if hedged perfectly and fully backed with cash is now locked to +/- ~20% (depending on IV) at little to no cost.
More here: http://www.investopedia.com/articles/optioninvestor/09/asset... || http://www.theoptionsguide.com/the-collar-strategy.aspx || http://www.theoptionsguide.com/costless-collar.aspx || http://www.advisorperspectives.com/newsletters10/Risk_Manage...
Mark Cuban used this to stay a billionaire through the dot-com crash: https://www.quora.com/How-did-Mark-Cuban-survive-the-dot-com...