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Volatility is part of the game. Markets don’t move in a straight line, and if you’re not hedged when things get choppy — which is every day at this point — you’re at the mercy of price swings.
The key to surviving — and thriving — in volatile conditions is having a plan to protect your downside while keeping your upside intact.
Why Hedging Matters
Most traders focus only on making money when the market goes up. But when the market turns, they scramble to protect profits or, worse, take avoidable losses.
That’s why I always maintain hedge positions, especially when major indexes get extended from key moving averages.
For example, with the S&P 500 (SPX) stretched nearly 700 points above its 200-day moving average, I started hedging through micro e-mini futures and options. That way, if the market pulls back — which it inevitably will — I am covered.
I also use macroeconomic safe havens as a hedge, keeping a close eye on currency and bond flows that tend to gain strength during equity market corrections.
Options are another powerful tool.
Selling calls against long stock positions or using ratio spreads allows me to generate income while reducing risk. If I expect a pullback, I might sell covered calls on Nvidia (NVDA) or Tesla (TSLA) to collect rich premiums while limiting my exposure.
How I Structure My Hedges
The best hedging strategy is one that balances protection without capping potential gains. That’s why I use a mix of futures, options and inverse positions instead of simply selling everything when the market gets shaky.
For instance, I keep a portion of my portfolio in bonds when equity markets look unstable.
Recently, we’ve seen the iShares 20+ Year Treasury Bond ETF (TLT) start to reliably re-establish its traditional negative correlation with stocks, which is a sign that traditional diversifiers are working again.
If stocks slide, TLT should pick up the slack.
I also hedge using sector rotation. When growth stocks in the Technology (XLK) get hit, I look for opportunities in defensive sectors like the Health Care (XLV) and Financials (XLF).
This keeps me in the market while avoiding the worst drawdowns.
Hedging isn’t about predicting every move. It’s about positioning yourself to withstand volatility so you’re not forced into bad decisions when markets get rough.
If you’re actively trading, you need a plan to manage risk — because stocks won’t always move in your favor.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. Major Announcement!
One of the hottest stocks in the market is setting up for a super squeeze.
And I will reveal the name for free, along with the phenomenon driving it.
Disclaimer: We develop tools and strategies to the best of our ability, but we can’t guarantee the future. There is always a risk of loss when trading. Past performance is not indicative of future results. While we have been using the Pinch Point Scanner with great success, we cannot guarantee any future results. What you will see today are some of the best examples over the last few months. There were bigger winners, there were smaller winners, and there were losers. Since the Pinch Point Scanner is a tool for traders and not a trading service, profits and performance will vary among users.
