This article was originally published in The Option Strategist Newsletter Volume 1, No. 12 on June 11, 1992.
With myriad investment advisors and the media trumpeting the fact that the market is overvalued, and with scary comparisons to the summer of 1987 abounding, an owner of stocks might justifiably be concerned with how he can safeguard his portfolio. He may not want to sell out his portfolio and go into an all cash position, but he would like to have some "insurance" in case the market takes a nosedive. Most investors in today's markets are familiar with the fact that index futures or index options can be used to protect one's portfolio. However, few know exactly how to adequately and correctly protect their portfolio of stocks. In this week's feature article, we'll describe the way in which one can compute the number of futures or options that would be needed to properly hedge his portfolio.
