Ask The Compound

How Do You Hedge With Options?

Jan 21, 2026
Guest
Brian Jacobs
Brian Jacobs, a portfolio manager specializing in option-based ETF strategies, shares valuable insights on hedging equity exposure. He explains the mechanics of collars and dynamic puts, enhancing understanding of risk management. The discussion covers buffered ETFs, their growing trend, and how they provide downside protection. Jacobs highlights the importance of tax efficiency for advisors and explores the historical performance of these options. Personal reflections on financial independence and the decision for a spouse to stay home round out this engaging conversation.
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INSIGHT

Options Act Like Insurance And Yield Tools

  • Options function like insurance: buying protection costs a premium while selling collects premium but creates exposure.
  • Covered calls and put hedges are the two dominant ETF option uses and can shape return profiles.
ADVICE

Use Collars To Trade Upside For Downside Protection

  • Collars pair bought puts with sold calls to fund downside protection by capping upside.
  • Expect the fund to actively adjust the collar to balance protection and cap placement over time.
INSIGHT

Active Hedging Offers Flexibility And Tax Benefit

  • Active hedged ETFs can dynamically reset protection instead of fixed annual buffers.
  • ETFs structured correctly can offer greater tax efficiency than doing option trades in taxable accounts.
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