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, when the S&P 500 stretched too far above its 200-day moving average, I started hedging through micro e-mini futures and options. That way, if the market pulled back — which it did — I was covered.
I also used the Japanese yen as a hedge, since it tends to gain strength during 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 high-beta names like Nvidia (NVDA) or Tesla (TSLA) to collect premium 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, I’ve seen Treasury bonds (TLT) start to break their correlation with stocks, which is a sign that traditional hedges are working again.
If stocks slide, bonds should pick up the slack.
I also hedge using sector rotation. When growth stocks in Technology (XLK) get hit, I look for opportunities in defensive sectors like 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.
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