[9th Anniv. Quiz] If I hold Nvidia and Microsoft, how to hedge possible pullback?

Has the long-awaited market correction finally begun? Yesterday, technology stocks generally experienced a decline, with prominent AI companies such as $NVIDIA Corp(NVDA)$ and $Microsoft(MSFT)$ dropping by 3%. $NVIDIA Corp(NVDA)$ closed at $374.75, $Microsoft(MSFT)$ closed at $323.38.

If I hold tech stocks, how can I hedge against this? This article will introduce three options strategies to hedge against the potential market correction.

1. Buy put

You can purchase put options on Nvidia and Microsoft to provide downside protection. In the event of a pullback, the value of the put options would increase, offsetting some of the losses on the stock positions.

Striking price: you can choose the current price of $NVIDIA Corp(NVDA)$ and $Microsoft(MSFT)$, which is $374.75 and $323.38.

2. Sell covered call

As you want to hedge the potential pullback, you are also betting that they won’t rise too much. Therefore, you can sell covered call to earn premium.

You need to select a strike price for the call options that you believe is unlikely to be reached during the given time frame. This allows you to keep your shares and the premium received.

Striking price: you can refer to the highest point of the two stock, which is Nvidia - $419.38, and Microsoft - $338.56.

3. Collar strategy

It involves combining the purchase of protective put options with the sale of covered call options. Compared to the above strategies, the collar startegy can help you decrease the cost of buying put.

Buy Put: refer to the above-mentioned current price put

These put options act as insurance against a potential decline in the stock prices. If the stocks experience a pullback, the increase in the value of the put options can offset the losses in the stock positions.

Sell Covered Call: refer to the above-mentioned high points

By selling these call options, you receive a premium, which can provide income and help offset the cost of purchasing the protective put options.

Expiration date: the most influential event for the market is the CPI and Fed decision next week. Thus, you can choose the expiration date of 16/June.

The first question of 9th Anniversary Quiz

Remember to write your answer in the comment section and repost!

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