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Don Kaufman here. |
The market is a mess right now. We've got the Dow tumbling 1,100 points, tech stocks in a nosedive, and Trump declaring war on Jerome Powell. It's a trader's nightmare or paradise, depending on how you play it. But I'm not here to rehash headlines—you've got CNBC for that. |
Instead, let's talk about something from our session that's hyper-relevant to what's happening: hedging and why your hedge should lose. |
Yup, you heard me right. Your hedge should lose money, and if it doesn't, you might have bigger problems. Let's break it down. |
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The Market Is Doing Its Best Rollercoaster Impression |
Before we get into hedging, let's set the stage. The S&P 500 is down over 3%, the Nasdaq is bleeding 3.4%, and everyone's favorite tech darlings—Tesla, Nvidia, Amazon—are tanking. |
Traders are panicking, and volatility is spiking. It's chaos. |
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But here's the thing: markets don't just move randomly. They're reactive. |
And in times like these, market makers are scrambling to hedge their exposure, which in turn creates even more volatility. It's a feedback loop of fear and hedging. |
Now, if you're playing in this sandbox, you probably have some positions on. |
Maybe you're holding a Christmas Tree Spread, or maybe you've got a Costco trade or something in the XLP ETF. Whatever it is, the big question is: Do you have a hedge? |
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Why Your Hedge Should Lose |
Here's the golden rule of hedging: if your hedge is making money, you're in trouble. I know that sounds counterintuitive, so let me explain. |
When you put on a hedge, the entire point of it is to keep you in the game. It's not there to make you rich; it's there to make sure you don't get wiped out when the market does something insane—like, say, tank 1,100 points in a day. |
If your hedge is losing money, that's actually a good sign. It means the market is moving back in your favor, and the position you're hedging is recovering. Let's look at an example: |
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The Christmas Tree Spread |
Let's say you've got a Christmas Tree Spread on—a multi-leg options strategy with a high probability of success but a defined risk. |
The market tanks, and your spread is suddenly down $3,000. |
You're sweating. You decide to hedge, maybe by buying some puts or shorting futures. |
Now, as the market stabilizes or even rallies a bit, your hedge starts losing money. |
That's a good thing! |
Why? |
Because it means your original trade—the Christmas Tree Spread—is recovering. If the hedge was making money, it would mean the market is still heading deeper into the abyss, and your original position is getting worse. |
Here's an example of what it looks like and how it's constructed. You can do this with either call or put options. |
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Hedging Is About Survival |
This is where most traders mess up. They think a hedge should be profitable. But let me tell you: a hedge is like life insurance. If you're cashing in on it, something has gone horribly wrong. |
The only job of your hedge is to keep you alive. |
That's it. |
It's not there to make you money. It's like an airbag in your car. You don't want it to deploy unless it absolutely has to. |
And when it does, you're not celebrating the airbag—you're just grateful it kept you from going through the windshield. |
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How to Hedge Without Screwing It Up |
Here's where it gets tricky: how much should you spend on a hedge? The goal is to find the balance between protecting your position and not eating up all your potential profits. |
Keep It Cheap
Don't blow your entire account on a hedge. If you're hedging an options position, aim to spend no more than 10-15% of the total risk on the trade. For example, if your Christmas Tree Spread has a max risk of $10,000, your hedge shouldn't cost more than $1,000-$1,500.
Time It Right
Don't slap on a hedge just because the market is moving. Wait until the market is showing signs of extreme fear—like we're seeing today. When volatility spikes, hedges like puts or inverse ETFs become more effective.
Know When to Let Go
Once the market calms down and your original position starts recovering, ditch the hedge. Holding onto it too long can eat into your profits and drag down your returns.
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Why This Matters in Today's Market |
Look, the market is a powder keg right now. Trump's hammering Powell, the Fed is stuck between a rock and a hard place, and global trade tensions are adding fuel to the fire. |
If you're trading in this environment without a hedge, you're playing a dangerous game. |
But if you do have a hedge—and it's losing money—congratulations! |
That means your original position is likely improving. It's a sign you're staying alive in a market that's trying to take everyone out. |
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Playing Chicken with the Market: The Real Edge You Need |
I've been through this movie a hundred times before. The market tanks, traders panic, and suddenly everyone forgets the basics. But here's the deal: if you can stay calm, manage your risk, and use proven systems wisely, you can come out the other side stronger. |
Right now, I'm holding onto my positions—even the ones that are down—because I know the probabilities are on my side. And if I need to hedge along the way? |
So be it. |
I'll take a small loss on a hedge any day over getting blown out of the water. That's the difference between guesswork and having a clear, consistent plan. |
If you're looking at this market and feeling overwhelmed, here's what you need: a system. |
And not just any system. You need one that's designed to recession-proof your portfolio while giving you the tools to thrive in volatile markets like this. |
That's exactly why I created the Day Trader Mega Bundle—to help you navigate the chaos and come out on top. |
Don't Just Survive—Thrive |
This isn't just another trading course. It's a complete strategy suite—built by traders, for traders—that gives you lifetime access to 22 Day Trading Masterclasses, 2 exclusive Day Trading Masterminds, and a full year of daily planning reports. |
This is your chance to recession-proof your retirement, take control of your trading, and turn market volatility into opportunity. |
But don't wait—this offer is only available for a limited time, and today is the last day to grab it. |
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What's Next? |
Take action now. |
This isn't just about surviving—it's about thriving. Markets like these are full of opportunity, but only if you have the right tools and strategies to capitalize on them. |
Click below to get started and discover how to recession-proof your portfolio with my most powerful trading systems and strategies. |
👉 Yes! I Want The Day Trader Mega Bundle Now! |
Let's make the next move the one that changes everything. |
To your success,
Don Kaufman |
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