With the recent rise in volatility, there has been a lot of talk about a potential equity market crash. Many investors are nervous about when, not if, this crash will occur and are looking for some protection for their stock portfolios. Closing out your stock positions is an option, but many stocks pay dividends that the investors do not want to relinquish even when facing the threat of, or, during a crash. Another reason for holding on to a stock position is to avoid tax ramifications on profitable sales of securities.
The most common protection that traders/investors seek is to buy puts on stocks they are holding. The value of the put will increase as the price of the underlying stock decreases thus covering the losses in the stock position. This is easy but also very expensive as you will have to pay a premium for every put you buy for every stock that you insure.
Fortunately, there is a less expensive way to protect a portfolio. You can use the index futures contracts as a...
