Despite Market Highs, Dan Collins Cautions Investors: Hedge with Binary Securities

From the floor of the CME group Dan Collins, Editor in Chief of Futures Magazine and Contributor for Traders Exclusive discusses recent highs in the market and suggests that investors protect themselves against possible decline. Despite the “Wall of Worry,” he says, equities consistently make higher highs as markets move forward. Dan’s technical contacts have espoused a fear that the market is overbought. But today there was a draw down, reducing market saturation, caused by increased instability in Iraq (threatening oil supply), negative GDP numbers for 1Q. Dan advocates investors’ being ready for a large decline, but at the same time warns against taking out exposure too early and missing out on gains. He suggests using options and other binary securities in order to hedge equity risk cheaply, echoing Andrew Wilkinson’s statement that, with the VIX at its lowest levels since before the 2008 financial crisis, buying protection from risk is cheaper than ever.