Trying to protect a portfolio through timely liquidation of individual securities, can be very disruptive to a long-term portfolio and poses the ultimate dilemma about when to reinvest. Instead, the preference is to use a series of measured risk reduction techniques, as follows: 1) Build a portfolio comprised of high quality securities specifically chosen for their favourable Sharpe Ratios, low Betas and a moderate range of volatility. 2) Writing short term (monthly) OTM Covered Calls (CCs) on the core stocks. CCs generate additional cash for the portfolio as the market gradually gyrates upward. 3) Pre-set Stop Loss and Trailing Stop Loss trading orders to protect some of the gains and invested capital on individual positions. During market pullbacks, about 25-50% of the portfolio could be liquidated when these pre-set trade orders are triggered. 4) To hedge some of the remaining portfolio, setup a time-laddered portfolio of Long Vix Call Options. Note: In new portfolios, hedging tactics require skills that come from many years of market experience. Review Chapters 21 - 23 before attempting to exploit the more intense decision-making required. With hedging, in particular, an investor must use the right tools as well as deploy both contrarian (short selling) and day-trading acumen in order to succeed.

Assuming you have experience and access to a trading platform, you can jump right in. The current OGF core portfolio holdings (Tier 1) are listed on "The OGF" page. Except for a minor few, most are intended as long-term holds. An investor can input these to a watchlist and then decide which stocks, and when, to invest if any make sense for their personal circumstances. Otherwise, an investor can follow along with the daily trades to know when positions are being added or rebalanced. The OGF holdings list is updated quarterly. When initiating and/or adding to long-term positions, we follow the QARP (Quality at Reasonable Prices) philosophy by setting partial, GTC (good-til-complete), low-ball bids. If an investor would like to build more knowledge before launching their portfolio or would just like to refresh their gameplan, "The Investing Oasis: Contrarian Treasures in the Capital Markets Desert" provides a roadmap, the tools & tactics for the big picture and/or on a piecemeal basis. IO Tactic: Tier 2 Short Term OTM (Out-of-the-money) Covered Calls are deployed when a core stock position equals at least 100 shares or more. Where a core stock is intended to be held for the long-term, CCs allow the investor to generate active income. Note: Writing Call options for more shares than are held in the core portfolio is called "writing naked" and is considered a speculative activity. IO Tactic: Tier 3 Writing short term OTM/ATM/ITM cash-secured Puts can be used to initiate and build-up core positions. Rather than buying the shares outright, this is a preferred method to build positions because it reduces the ACB by the amount of the premium generated. Note: Each options contract is equivalent to 100 shares. IO Tactic: Where the underlying share price is near its 52 week high, preference is to write Out-of-the-money (OTM) Puts. On the other hand, when a stock has recently been in decline, ATM or even ITM Puts are considered, depending upon the degree of the discount and level of confidence for a recovery. Ordinarily, ATM/ITM are deployed with ever increasing time horizons to allow adequate time for the underlying stock price to return to growth mode. Note: Put writing adds leverage to a portfolio.

The prime objective of writing cash-secured Puts (Tier 3) is to have the contracts mature worthless. Therefore, when Put contracts are written, they are usually listed on the Trade Reports and only listed again only when a position is bought back (with explanation). Note: Writing a Put contract is the deployment of leverage in a portfolio. "Cash-secured" means that a contract is written with adequate cash and/or margin to be able to cover the cost of buying the position outright when exercised. Strike prices can be written out-of-the-money (OTM), at-the-money (ATM), or even in-the-money (ITM), and for different time horizons. As such there are many thereby were written Usually, CCs are set so deeply OTM that most just expire. Further, once a CC is written, a limit order is immediately set at 10-25% of the value of the Call contract. Occasionally, however, an underlying share price may rise quickly and exceed the Strike Price, rendering a CC position to be negative. There are 2 choices: 1) Leave the positions (CC and the core shares) intact and accept that those shares will be removed from the portfolio (in exchange for cash) at maturity. This option is the neutral option. As the underlying shares continue to rise, so will the cost of the CC, thus the maximum gain will have been achieved at the Strike Price. At maturity, when the Call contract is exercised and the core position is removed from the portfolio, a new core position can be reinstated by either buying new shares or by selling ATM/ITM Put contracts to replace the vacated shares. Often, this is the better decision because, even up to the last few days prior to maturity, the underlying shares may decline below the Strike price, in which case, the core shares would not be exercised away. 2) Buy back the CCs, likely at a premium, hoping that the momentum of the underlying shares will recapture any value lost. When a CC is bought back early, this would be noted on the Trade Reports. As noted in the response above, CCs are an excellent way to generate additional income for a portfolio (over and above any dividends earned) with the only risk being a neutralization of a position when the underlying share price has risen above the Strike price.

The prime objective of writing an out-of-the-money (OTM) Covered Call (Tier 2) is to generate supplementary income for the portfolio. Usually, the Strike price is set so deeply OTM that most contracts just expire worthless. The full value of the premium generated therefore adds to the performance of a portfolio. IO Tactic: When initiated, they are listed on the Trade Report. Once a CC is written, a limit order is immediately set at 10-25% of the value of the Call contract in order to reduce its management time. Occasionally, however, an underlying share price may rise quickly and exceed the Strike Price prior to maturity, in which case there are two choices: 1) Leave the CC intact and accept that the underlying shares will likely be exercised out of the portfolio (in exchange for cash) at maturity. This is the neutral choice. As the underlying shares continue to rise past the Strike price, so will the cost of the CC, thus the maximum gain will have been achieved at the Strike Price. Any further rise in the price of the underlying shares goes to the option buyer. IO Tactic: However, at maturity, when the Call contract is exercised and the core position is removed from the portfolio (in exchange for cash), a new core position can be reinstated by either buying new shares at the current share price or by selling ATM/ITM Put contracts to replace the vacated shares. Often, the latter is the better decision because, even up to the last few days prior to maturity, the underlying shares may decline back below the Strike price, in which case, the core shares would not be exercised away. 2) Buy back the CCs to avoid having the underlying shares excerised away, usually at a premium. This would be done in anticipation that the further rise in the underlying shares will recapture any value overpaid for prematurely buying back the CCs. The Trade Reports would identify when a CC is discretionarily bought back early.