The S&P 500 Is Near an All-Time High: This Strategy From Expert Investors Could Significantly Lower Your Risk

Motley Fool05-05

A stock replacement strategy using deep-in-the-money call options can lower your risk. This approach can be used with any stock or ETF for which options are traded. While this approach ...

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color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe S&P 500 Is Near an All-Time High: This Strategy From Expert Investors Could Significantly Lower Your Risk\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-05 17:50 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.fool.com/investing/2024/05/05/the-sp-500-is-near-an-all-time-high-this-strategy/><strong>Motley Fool</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>A stock replacement strategy using deep-in-the-money call options can lower your risk.\n\n\n\n\n\n\n\nThis approach can be used with any stock or ETF for which options are traded.\n\n\n\n\n\n\n\nWhile this approach ...</p>\n\n<a href=\"https://www.fool.com/investing/2024/05/05/the-sp-500-is-near-an-all-time-high-this-strategy/\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4551","symbol_name":"寇图资本持仓","start_time":0,"source_url":"https://www.fool.com/investing/2024/05/05/the-sp-500-is-near-an-all-time-high-this-strategy/","article_id":"2433489392","we_media_id":null,"thumbnails":["https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F775581%2Fwoman-with-fingers-crossed-laptop.jpg&op=resize&w=165&h=104"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2433489392","pubTimestamp":1714902600,"sourceInfo":{"source_id":"fool_stock","name":"Motley Fool"},"weMediaInfo":null,"summary":"This simple approach can allow you to reduce risk while still participating in future stock or ETF gains.","collect":0,"end_time":0,"defaultTopTitle":"fool.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4551":"寇图资本持仓","SPY":"标普500ETF","UPRO":"三倍做多标普500ETF","ISBC":"投资者银行","BK4505":"高瓴资本持仓","CAPE":"Shiller CAPE U.S. Equities ETF","BK4581":"高盛持仓","BK4504":"桥水持仓","LEAP":"Ribbit LEAP Ltd","ITM":"免AMT中期市政债ETF-VanEck Vectors","IVV":"标普500指数ETF","SSO":"两倍做多标普500ETF","OEX":"标普100","BK4585":"ETF&股票定投概念","BK4534":"瑞士信贷持仓",".SPX":"S&P 500 Index","SDS":"两倍做空标普500ETF","VOO":"Vanguard标普500ETF","SH":"标普500反向ETF","BK4211":"区域性银行","BK4559":"巴菲特持仓","OEF":"标普100指数ETF-iShares","SPXU":"三倍做空标普500ETF","BK4588":"碎股","BK4550":"红杉资本持仓","FDN":"First Trust Dow Jones Internet I"},"translate_title":"标普500接近历史高点：专家投资者的这一策略可以显著降低你的风险","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VOO":1,"SPY":1,"LEAP":1,"CAPE":1,".SPX":1,"ISBC":1,"ITM":1,"FDN":0.9,"ESmain":0.6,"UPRO":0.6,"SSO":0.6,"SPXU":0.6,"SH":0.6,"SDS":0.6,"OEX":0.6,"OEF":0.6,"IVV":0.6},"content_text":"A stock replacement strategy using deep-in-the-money call options can lower your risk.\n\n\n\n\n\n\n\nThis approach can be used with any stock or ETF for which options are traded.\n\n\n\n\n\n\n\nWhile this approach can reduce risk, it doesn't eliminate risk.\n\nMany people have acrophobia -- a fear of heights. The higher they get, the more afraid they are. Some investors experience a similar fear. The higher the stock market moves, the more afraid they are.This investors' version of acrophobia could be flaring up with the S&P 500 less than 4% below its all-time high. It doesn't help matters that the index's cyclically adjusted price-to-earnings (CAPE) ratio is also near a record high. What can you do if you don't want to avoid the stock market altogether? This strategy that expert investors use could significantly lower your risk.Image source: Getty Images.The stock replacement strategyThe stock replacement strategy uses deep-in-the-money call options to replace stock. If that sounds like mumbo-jumbo, don't worry. I'll walk you through what this strategy entails.First, call options give the owner the right to buy a stock or an exchange-traded fund (ETF) at a specified price (called the strike price) by a specified time (the expiration date). However, the owner has no obligation to buy the stock or ETF by the expiration date.Note that call options give the right to buy shares in blocks of hundreds. For example, one call option allows you to buy 100 shares of the underlying asset, two call options allow you to buy 200 shares, etc.Call options with a strike price higher than the current share price of the stock or ETF are referred to as out-of-the-money (OTM). If the strike price is lower than the current share price, the option is referred to as in-the-money (ITM). When the strike price is significantly lower than the current share price, it's deep ITM.With this strategy, an investor who owns a stock or ETF that has appreciated sells part or all of their holdings and replaces it with deep ITM call options. Ideally, the call option will have a delta (a measure of the sensitivity of the option's price to changes in the price of the underlying asset) close to one. This means the call option will move up or down similarly to the stock or ETF.The option should have an expiration date well into the future. Long-Term Equity Anticipation Securities (LEAP) options are good picks because their expiration dates are between one to three years out.How this approach reduces riskThe stock replacement strategy reduces risk by reducing the amount of money invested. Buying call options is less expensive than buying shares of the underlying stock or ETF. However, the approach allows you to still participate in an upward momentum of the underlying asset.Let's look at an example of how this works. Suppose you've owned 500 shares of the Vanguard S&P 500 ETF (VOO 1.24%) for several years and have accumulated some nice gains. With the S&P 500 near its all-time high, you're getting jittery. You could sell some or all of your shares and replace them with call options.VOO's price is around $464 at the time of this writing. You can buy a call option on the ETF with a strike price of $295, an expiration date of Jan. 17, 2025, and a delta of 0.9997 for roughly $176. This means you could sell your 500 shares of VOO for around $232,000 and buy call options to replace those shares for around $88,000. You'd immediately have $144,000 that's no longer at risk (perhaps parked in safe U.S. Treasuries). But if VOO rises, you'll profit close to the same amount as if you owned shares of the ETF. This same approach can be used with any other stock or ETF for which options are traded.Lower risk doesn't mean no riskKeep in mind that this stock replacement strategy doesn't eliminate risk. If the price of the underlying asset declines, so will the deep ITM call option.Options also experience time decay. In other words, the closer to the expiration date, the more the option's value decreases -- even if the price of the underlying stock or ETF doesn't fall. LEAPs give you more time, limiting time decay to some extent. You can also \"roll\" your call options by replacing them with new options with later expiration dates.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2433489392"}