This earnings season is a minefield—markets at all-time highs, but the reaction to results is unforgiving. As Goldman Sachs points out, it’s classic “negative asymmetry”: good news gets a shrug, but a miss triggers a cliff-dive. In this kind of environment, risk management isn’t just smart, it’s essential if you want to survive—and thrive.
How do you hedge risks when the market feels this stretched?
1. Options as Insurance:
The simplest way to protect gains at market highs is buying puts—either on the stocks you own or on broad indices like the S&P 500 (SPY) or Nasdaq (QQQ). Yes, it costs money (like buying insurance), but when a bad earnings print hits and a stock drops 10–15% overnight, those puts suddenly look genius.
2. The Iron Condor for Earnings Volatility:
When implied volatility is high pre-earnings, the iron condor shines. Sell an out-of-the-money call spread and put spread on the same stock or index. You profit if the price stays within the range—perfect for those “meh” reactions. If the move is huge, your max loss is capped. Use this for range-bound names or if you think the market is overpricing the move.
3. The Protective Collar:
Own stock you don’t want to sell? Use a collar: buy a put below the market (for downside protection) and sell a covered call above the market (to pay for the put). You cap both your downside and upside, but sleep better at night.
4. Earnings Straddle/Strangle:
Expecting fireworks but not sure on direction? Buy both a call and a put (“straddle”), or the same but with further strikes (“strangle”). If the stock explodes up or down, you can make money. But beware: if the move is less than the combined cost, you lose.
5. Spread Out Your Bets:
Don’t overload on any one stock or sector this earnings cycle. Diversification is an oldie but a goodie—especially when some names pop and others flop.
My Playbook:
• Use puts as “disaster insurance” on my biggest positions.
• Deploy iron condors and collars on high-volatility names with priced-in big moves.
• Keep some cash on hand—when panic hits, the best opportunities appear.
• Don’t get greedy: trim winners into strength, add to laggards only when the dust settles.
Bottom line:
In a market where up is slow but down is fast, managing risk isn’t just defensive—it’s offensive. Options give you the flexibility to profit from calm, volatility, or even disaster. The smartest move? Protect your capital so you can stay in the game for the next rally.
What about you—how are you hedging this earnings season? Which strategies are in your toolkit?
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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