With this week’s stock market dip throwing even the safest of options like Dow Jones and S&P 500 out the window, everyone was left wondering why they didn’t contribute to the „Sell in May and go away“ agenda that was trending on Wall Street.
With the interest rates receiving a half percentage point boost, it wasn’t unexpected for stocks to plummet, given the fact it was the steepest increase we’ve seen in the past 20 years, and while the move was necessary to stop the growing inflation in the US, many are doubtful the Federal Reserve has what it takes to stick the landing and prevent another recession.
Currently, there are dozens of catalysts of the market’s volatile state, but this article won’t dwell too much on the details, and will instead, aim to present you with the alternatives and defensive strategies needed to stay afloat in this period.
„Shorting“ the market is one of the best options for anyone expecting a stock decline, and ProShares Short S & P500 ETF is the simplest way to keep your investments on the rise as the market continues to plummet.
This $2 billion fund uses a complex system of derivative contracts to counteract the daily decline of the S&P 500, and while it isn’t an exact 1-to-1 inverse of the famed index fund, it’s still close enough to be worth it.
The past month has seen the S&P 500 go down by 7.4% while the P500 ETF managed to rise by 7.2% in the same period, although should the market go up again, these funds will drop accordingly, so remain cautious.
DIY option trading, simplified
Reducing risk in your portfolio is traditionally done through the usage of options, but the task itself can be extremely daunting and confusing if you’re new to DIY option trading, and this is where the JPMorgan Equity Premium Income ETF comes from.
The $9 billion fund has significant exposure to the S&P 500, but its managers still trade options on large US stocks with a strategy referred to as covered calls.
What this means for you, though, is that selling these options caps your upside if the market is in a period of growth, but on the flip side, you have a guaranteed cash flow if the market stagnates or collapses, which is how JEPI maintained an approximate 8.0% yield over the past year, falling by only 5.5% in the past month.
Your next option could be low-volatility ETFs which often underperform when the market gets red hot, but they remain steady through periods when stocks, in general, are seen as a less-than-favorable asset class.
For example, the Invesco S&P 500 LV ETF has been underwater for the past three to five years thanks to stocks being generally strong in the market, but as 2022 began, it’s only been down by 5.2%, compared to the hit that standard S&P 500 took.
Finally, if the currently available options are still causing you a major headache, perhaps it’s best to go for old favorites like the SDPR S&P 500 Trust, as we’ve always seen stocks bounce back after a fallout like this one, meaning that you can easily make money in the long-run, so long as you’re patient.