Firstly, the U.S. stock market operates as a highly efficient market, utilizing its inherent correction mechanisms for regulation. Despite strong liquidity, the market employs robust correction mechanisms, evident in cases like REWALK's exoskeleton, GOPRO's video social, and the C-end application market in the 3D printing industry.
Furthermore, the pricing mechanism in the U.S. stock market is generally reliable, providing reasonable estimates for most company stock prices unless misled by an overall deviation. Therefore, market valuation is a valuable reference for your investment decisions, ensuring you stay on the correct track by closely monitoring valuation trends.
Considering this, it is advisable to choose companies with at least a bullish trend on a monthly basis. Selecting companies with both operational security and valuation assurance is crucial for reducing investment costs through phased purchases. Avoid companies with bearish trends on a monthly basis unless you understand where the excess profits are coming from, as these companies might be prone to negative events causing a chain reaction in the market, commonly referred to as “black swan events.”
Secondly, employing hedging strategies cleverly is essential in U.S. stock market investments. Various tools and creative investment strategies are available. For instance, during the Trump election, directional hedging, asset-balanced hedging, and intrinsic logic hedging were employed.
Directly shorting major market indices through options or ETFs is the most straightforward form of directional hedging. Despite limitations, such as being unable to trade during special periods, options hedging effectively addresses foreseeable tail risks at a lower cost. For unpredictable risks, ETFs can be used to adjust the portfolio size over the long term.
Asset-balanced hedging is well-suited for the U.S. stock market, given its long-term bullish nature. Ensuring sufficient idle funds in the account inherently achieves hedging, allowing you to seize opportunities in market fluctuations promptly.
Additionally, if you are inclined to take risks, allocating some defensive assets to counteract the negative impact of volatility might yield alpha returns if luck is on your side.
Intrinsic logic hedging involves weighing investment choices by monitoring the subsequent changes in an event affecting stock prices. Using the example of the Trump election, if Trump were to win, stocks in energy and defense sectors would likely surge, directing attention to these areas. Conversely, if Trump were not to win, these stocks might not experience a significant decline and could even continue to rise amid an overall market upswing.
When employing options hedging, investors can utilize a "sell call" strategy. While simple and executable, this strategy carries the risk of selling too early. However, investors need not overly worry, as there's a method to mitigate this risk—rolling over at expiration. If your sell call is about to incur losses, rolling over to a deep in-the-money option might turn losses into gains.
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