Investing strategy, how to hedge a sell-off in tech stocks: JPMorgan - Business Insider

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JPMorgan lays out 2 reasons why 'bulletproof'-looking tech stocks are actually at serious risk — and shares 2 simple trades for investors looking to protect themselves

Meanwhile, low interest rates are making their returns relatively more attractive to yield-starved investors.

There are two primary risks on their radar, and the first is higher interest rates. These should be of concern because the momentum factor — linked to tech stocks because of their popularity — has a strong inverse relationship with rising rates. Considering these risks, Cheng recommend the following two trades that could help investors limit their losses if tech stocks decline, and earn extra income if the rally continues. For investors who wish to own the Nasdaq 100-linked ETF at a cheaper price, one way to go is selling a put option that locks in a favorable future purchase.

"We propose selling 1x 6M ATM put to buy 1.55x 6M 87.5% resettable puts on QQQ, for zero premium," Cheng said. "The resettable puts will reset its strike 5% higher for every 5% higher in spot, observed at monthly frequency, with no cap on resets."

 

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