Why Most Hedges Hurt More Than They Help
Let’s talk about hedging.
It sounds like a smart move — a safety net. A backup plan. A way to protect your portfolio in case the market suddenly drops.
But here’s the truth most traders miss:
Most hedges don’t work.
Not because they’re a bad idea in theory — but because they’re often executed poorly, cost too much, or add complexity without actually reducing risk in the real world.
Here’s what I mean:
Imagine you have a solid strategy. A 75% win rate. An average win of $80, average loss of $100. Over 100 trades, that nets you about $3,500 in profit.
Now you decide to hedge. You add a $20 hedge to each trade that will pay $50 if the market drops.
Sounds reasonable, right?
But in reality, that “just in case” hedge cuts your overall profit to $3,250. Same number of trades. More work. More complexity. Less money.
Even worse?
Most hedges don’t even work that well in practice.
If the market kinda drops — you lose on your main trade and your hedge. If the market grinds sideways — your hedge bleeds out through time decay. And if the market goes up? That hedge just became a $1,000 anchor on your returns.
So I am not a big fan of adding a “just in case” trade that just steals profits from otherwise good trading.
But there are some ways to have your cake and eat it too.
I will often use a 2-way trade when I am a bit concerned about the market, but don’t want to just cost myself money if the market does do what I want.
It’s a structure that has potential to profit in both directions. Like the “QQQ box” trade I shared recently, where I used a bullish call spread and a bearish put spread to build a range-bound setup.
If the market pops higher — I win.
If the market flushes — I win.
If it chops in the middle — I manage risk with defined exits.
For me, having these different trade structures all working at the same time is the best way to “hedge”.
I like to think of it as using diversification of strategy rather than diversification of assets. Because, as you’ve probably seen first hand, diversification of assets doesn’t work too well.
How often have bonds bailed you out when the S&P flushed 20%? Did that work in 2020? 2022? April this year?
But a set of strategies that are optimized in different market conditions makes way more sense to me.
Some of the strategies I am using right now…
👉 Two way trades like the hedge on QQQ that profits on a 2% move in either direction
👉 Aggressive trades on names like Tesla and MSTR designed for asymmetric reward — not high probability
👉 A majority of defensive positions that focus on cushion, defined exits, and positive expectancy with a LOT of different ways to win
And a lot more…
The key is that I am not trying to predict the market and then apply a method to it – I am building a network of strategies where –w hether I’m right or wrong in the short term — I have a net positive expectancy across the board.
So next time you think about “adding a hedge”…
Make sure it’s not just adding drag. Make sure it actually works within your system.
Or better yet — consider a structure that lets you stay profitable without needing a Plan B.
Hope this helps,
— Nate Tucci
P.S. See setups like this and much more every weekday at 10am ET in the Opening Playbook. Don’t miss it!
