I heard it again on the news.

The FEAR of the market crashing and when will the CRASH come and how bad will it be.

My reaction to that was who cares when it comes or if it comes?

Now there’s a reason I can say that and mean it and by the end of this post you will be able to also.

I am going to show you how to protect your stock portfolio no matter how bad the market crashed, EVEN IF THE MARKET WENT TO ZERO.

I want you to be in a position that no matter how crazy the market gets, you can sleep like a baby and know your finances are safe from any market decline no matter how severe that decline.

I am excited to share this strategy with you so you too can banish any fear you may have had about the market crashing and your portfolio being destroyed with huge losses.

Now there are several ways you can protect your stock portfolio, but the one I want to show you now is quiet simple and brutally effective.

So I think that’s a great place to start.

The strategy I want to show you is called a Collar yep just like the dog collar.

The collar strategy is your new best friend when it comes to protecting your stock portfolio from a market decline and it is the buying of a Put Option and the Selling of a Call Option around the stock you own.

Let’s look at an example with some numbers:

Now let’s say you own a stock and it is currently trading at $100 and you would like to be in a position that no matter what the market did or how bad it crashed you never wanted to lose any of that $100.

Here’s what you would do, you would look to buy a Put Option with a Strike Price of $100 and let’s say that cost you around $5.00 to buy.

What that means now is you are now protected from the stock declining below $100 no matter how much it declined.

But there’s a problem and that problem is you had to spend $5 to buy that protection, now most people would say I’m fine with that.

I spend $5 and I can protect my stock value even if it was to go to zero.

I agree that’s a great position to be in, but let me show you how to make it better, what about if you sold a Call Option to bring in some money to reduce the cost of the Put Option you bought.

Let’s say you could sell the $110 call option for $3.00 that means you were able to bring in $3.00 for the Call Option and use that money to reduce the $5.00 outlay you had for the Put Option you bought.

You now have to only outlay $2 of your own money to protect your stock from a decline from $100 all the way to zero.

Stock $100

Put Option Value $5.00

Call Option Value $2.00

Put Option Purchased $5.00 minus Call Option Sold $3.00 = $2.00 cost

Would you spend $2.00 to protect a $100 stock you own?

I know I would, I bet you insure your car and house every year don’t you?

So why not in a sense insure your Stock Portfolio, imagine being in a position that if the market were to crash and let’s say that $100 stock you owned is now trading at $60.

You can go to the market and request that it has to buy your stock at $100 even though the current price is at $60, that’s the power of having a Put Option for insurance on your stock.

Now there is one downside to this some people would say and that is if your stock was to go above the Call Option Strike Price before its expiration date that your stock could get called away.

That’s a fancy way of saying you would have to let someone buy your stock off you for $110 in or example, that’s fine by me, that would mean you made $10 on the sale and of course you can just turn around and by it again.

Now there are ways you can manage this situation so you do not have to have your stock called away but it’s hardly a crisis you made money.

And all along you slept like a baby, never having to worry once about what the market was doing, so when everyone else was freaking out seeing their stock portfolio getting destroyed in a market decline.

Here you were at peace knowing no matter what you are protected from any such decline, yes it cost you $2 in this example, not a bad price to pay for peace of mind and protecting your financial future.

Does it always cost $2 to protect the stock per share?

No it can actually be zero and that is when you are able to sell the call option for the same price you had purchased the put option for.

Now this is a very simplistic example of the collar trade but none the less a real one, if you would like to know more about it, let me know and I will expand on this wonderful strategy in other posts.

Good luck using this strategy and enjoy the peace it can bring you as a stock trader or investor.

I have also created a short video that shows you the process of How To Protect Your Stocks Against A Market Crash and some extra tips on how to go about it.

WATCH THE VIDEO

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