Ep. 1061: Four Voices with Michael Covel on Trend Following Radio
Michael Covel's Trend Following
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How to Diversify Your Portfolio
The way it works is if you have a 100% long equity exposure, you start with that. You buy put protection against that and just naively assume you're buying one year leaps at the money each year. That cost, assuming there's no value ever provided by those puts, the raw cost in that average is around 5%. Then let's look at it and say, okay, now we can pay for... Let's try to pay for that put protection. The end result is what we call risk replacement. We've taken half the risk to offset the entire risk of owning the S&P 500.
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