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Let me share something that sounds completely backward at first.
The best hedges I’ve ever put on are the ones I actively wanted to lose. I know how that sounds. Nobody logs into their brokerage account hoping to watch a position go to zero.
But when it comes to sophisticated portfolio architecture, losing on your hedge usually means you are absolutely crushing it elsewhere. That’s when you know you’ve structured your risk correctly.
I was talking about this exact setup recently with Chris Pulver on the Closing Playbook.
Chris’s core strategies are net bullish and rely heavily on the math of time decay — very similar to how I like to trade. That structural bullishness is exactly what makes an aggressive bearish hedge so attractive.
When you can get filled on a tail-risk hedge for an outrageous risk-reward ratio, and then the market just quietly grinds higher without ever giving that hedge a dime of value, it’s a massive win. It means the market stayed right in its healthy upward range.
You happily sacrifice the small premium you paid for the hedge because your primary, time-based setups are printing money.
That’s the whole point. When a hedge loses, it should simply mean the coast is clear for your core portfolio.
If you’re just trading directional momentum all the time and slap on a random bearish bet, you aren’t hedging — you’re just guessing. It’s a fast track to losing on both sides.
These outsized risk-reward hedges only work when they complement the exact mechanics of your existing portfolio.
When Both Sides Can Win
Here’s where the math gets incredibly interesting.
Let’s say you’re running a strategy like Chris’s Waterfall Income — a longer-term bullish framework designed to capture time premium and steady upward drift.
To protect it, you buy some deeply out-of-the-money (OTM) downside puts. You get filled for a tiny relative debit — say, paying around $1.80 or $1.90 per contract. In total, you’re risking $1,000 for the mathematical chance to make $18,000 if the floor drops out.
Then the market takes a temporary breather. The S&P 500 (SPY) drops back a few percentage points over the next couple of weeks.
Now what happens?
Your Waterfall Income positions are completely fine. They have plenty of time, structure and cushion built into them to withstand a routine dip.
But because volatility spiked and the market moved toward your puts, that downside hedge is suddenly up 200%, 300% or even 400%.
That is the absolute sweet spot.
Your core portfolio didn’t take a scratch, and you just made a killing monetizing a hedge.
That’s how professional traders view protection: I want a setup where if the hedge loses, my main portfolio wins — but if the market gets choppy, there is a very real world where both sides can make money.
Don’t Double Down on Direction
Now here is the golden rule of what not to do.
If your portfolio is already sitting heavily in cash or loaded up on short positions, you should not be adding a high-leverage bearish hedge. At that point, you aren’t buying insurance. You’re just doubling down on a market crash.
Before you take on a massive risk-reward trade under the guise of “protection,” ask yourself two questions:
- What happens to my net wealth if this hedge wins?
- What happens if it loses?
If both outcomes leave your total portfolio hurting, it isn’t a hedge. It’s just noise.
But if the hedge only loses money in a scenario where your other strategies are thriving, that’s not a reckless bet — that’s smart portfolio architecture.
That’s when hedging makes sense. And that’s exactly how you stay power long in a grinding bull market without losing sleep.
Now don’t forget to join us at 10 a.m. ET weekdays for Opening Playbook, and at 3:30 p.m. ET Closing Playbook!
Nate Tucci
Tucci Trades
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
#BREAKING: ‘I Hired a Team to Kidnap Tom and Graham’
The investigation has officially gone off the rails…
After six months of chasing leads, Emily Turner reached one shocking conclusion: The final pieces of Project Atlas weren’t hidden in documents…
They were hidden inside two people.
Classified Update #2 has just been uploaded… Watch it now to discover what pushed her to make an impossible decision, and what happened after Tom Busby and Graham Lindman were taken.
