A passive investment strategy, which automatically creates a hedge that helps limit losses without constant supervision. This automatic 'option' position is put into place through the utilization of 'Trailing-Stop' indicators.
The investor chooses at the beginning of his/her investment at what percentage 'loss' on the asset to execute a hedging option, and at what percentage difference from the market price to set the 'strike price' of that option.
EX: If an investor holds a long position on an asset with a market value of $10.00, and sets his two thresholds at 10%(percentage loss at which option is purchased), and 5%(percentage away from market value to set strike price); if the asset falls to $9.00 a put option will be purchased at a strike price of $8.55 (5% away from $9.00) so the investors maximum loss realized is 14.5% + option premium.
- Part of Speech: verb
- Industry/Domain: Financial services
- Category: Financial instruments
Creator
- Timmwilson
- 100% positive feedback
(Beijing, China)