Mitigating Risk, Maximizing Potential in a Volatile Market
Dr. Sharma, while financially secure with a high income and maxed-out retirement contributions, carried a substantial $280,000 student loan burden. She was concerned about the potential impact of a market correction on her investment portfolio, especially considering her debt obligations and the capital invested in her small medical practice. She needed a way to safeguard her investments against potential losses.
Golden Door Asset recommended a protective put strategy. We used the Put Option Calculator to determine the appropriate number and strike price of put options to hedge a portion of Dr. Sharma's equity portfolio, specifically $150,000 worth of S&P 500 tracking ETFs. This strategy allowed her to participate in market upside while limiting her potential losses to a predetermined level. The calculator helped illustrate that a $3,000 investment in put options could protect against a 10% market decline, capping her potential losses at $3,000 plus commissions, instead of $15,000.
The Put Option Calculator was used to analyze different strike prices and expiration dates for the put options, considering factors such as the current market volatility and Dr. Sharma's risk tolerance. We also used the Tax Equivalent Yield Calculator to determine the after-tax cost of the put option premiums, ensuring the strategy was tax-efficient.
$12,000 potential savings during a market downturn while maintaining upside potential.
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