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What Buying Protection Actually Costs You Every Year
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ticker lesson
Breakdown
0:00lesson
Buying protection costs traders
- Testing if protection worth cost
- Puts as car insurance for stock
- Testing on SPY over 6 years
- 1400 trades analyzed
2:11lesson
Put pay off analysis
- Put can pay off in certain scenarios
- T1 = made money, red = lost money
- Only 7% of puts made money
- Timing is critical for puts
4:30lesson
Cost of buying puts daily
- Cost 4.4% of stock value annually
- 21DT cost for managing puts
- Cost is small but recurring
- Hedging pays for 19% of trades
6:31lesson
Married put protection
- Married put saves 13.6% when stock falls 20%
- Cost 0.85% when stock flat
- Married puts save 61% of trades
- Unmanaged puts save 40-45%
8:46lesson
Comparison of buy and hold vs. married puts
- Buy and hold = 38,000 profit
- Married puts = 25,000 profit
- Unmanaged puts = 66% loss
- Cost of protection is significant
10:57lesson
Takeaways on hedging
- Hedging only works if timing is right
- Paying for protection costs more than helps
- Success rate improves from 7% to 19%
- Pay for protection only for risk you cannot carry
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