Retirement Portfolio Resilience Perspective
Primary Pillar: Risk Pricing Discipline
Supporting Pillars: Retirement Portfolio Construction • Resilience Across Market Environments
This educational article explains how ASX exchange-traded options can be used to protect investment portfolios and introduces the role of appropriately priced downside protection within long-term portfolio construction.
Viewed through today's Retirement Portfolio Resilience Framework, the enduring principle is not the use of options themselves, but the disciplined pricing and application of protection as part of resilient portfolio construction. The article reflects Gyrostat's long-standing philosophy that portfolio resilience is achieved by understanding and pricing risk rather than relying solely on market prediction. While the examples reflect the market environment of the time, the underlying principles continue to support the evolution of Retirement Portfolio Resilience.
This educational article forms part of Gyrostat's broader body of research, educational resources and portfolio construction insights documenting the evolution of the Retirement Portfolio Resilience Framework.
The progression of investment risk management - protect and benefit in changing markets
Feature article: Insuring your investments – how the ASX options market works
Executive summary
- Similar in purpose to buying insurance on your house or car, you can ensure you don't lose significant amounts of your investment capital on the ASX.
- Buying protection for your shares is termed a put option. When buying put options you pay a premium to lock in a value for shares you own at the agreed value or exercise price.
- Options can be used to either reduce risk (hedge -not risky) or to speculate (can be risky). Options are sometimes considered risky and overlooked.
- When you buy protection to hedge risk (the Gyrostat approach) it is the ASX who is the counter party.
- The ASX imposes collateral requirements on the seller of the option. The ASX had over $ 6 billion collateral from market participants at 30 June 2016
