The stock market is hitting all-time highs and investors are torn between the possibility of an economic downturn or entering a new leg of the bull market.
Last week’s article noted that money managers were increasingly using call options to gain additional exposure to the stock market. Some of this behavior might be deemed as a reckless form of leveraging in an act of FOMO or fear of missing out as stocks shrug off every macro headwind virus to tariffs.
In the article, we touched on the use of a Stock Replacement, which is essentially replacing ownership of shares with the purchase of call options. This is a good time to review the process and benefits.
Replace Rather Than Remove
When people want to reduce risk but maintain upside exposure they usually think in terms of buying put protection as a form of portfolio insurance. While this can be effective in minimizing losses during a decline, it can have a significant drag on performance in the form of the cost of premium paid for put options.
An alternative approach is a… Continue reading at StockNews.com