Question

Over the past couple of weeks, there has been tremendous volatility in the global equity markets. Assume that you own an investment portfolio valued at $250,000 on January 1, 2020. What could you have done to protect the value of your portfolio from these market conditions? What type of stock orders or derivatives would you have used and why? Please explain in detail.

Answer 1

Portfolio Investment Value: $250,000.

We have observed unprecedented volatility in global equity markets the past few months, it was mainly due to the Chinese virus outbreak.  

It was apparent from Dec2019-Jan2020 that a dangerous virus was spreading in mainland China and it could prove fatal to the entire globe.

During these times the Market reacts very sharply to the daily updates and volatility becomes very high. In such conditions, it is better to buy both Call and Put options.

1. Put options when markets were in high (during January-February).
2. Call options when markets corrected sharply by more than 30%.
3. And also Put options when markets were correcting because nobody can predict the lows during this time. The only thing which is a guarantee is very high volatility.

And options are best played during high volatility markets.

Also, Invest in the companies which provide
1. essential goods like Unilever Ltd, Walmart, Amazon etc.
2. Pharmaceutical & Medical equipment manufacturing companies.
3. Entertainment Companies like Netflix.

Because such services will be in very high demand during these times and potentially give a very high return.

After this pandemic is settled and controlled. It is best to scout for the good blue-chip companies which have strong business models & at attractive valuations. After scouting and selecting, it is best to invest in them.