SmartGuard Trading Guide
What is Position SmartGuard?
Position SmartGuard is specifically launched for users who hold a certain amount of a stock. By buying corresponding Baby Bear (put options) to form a stock + Put investment portfolio, hedging the downside risk of stocks.
Baby Bear is an innovative option product launched by RockFlow. It can be understood as a bearish "opportunity" to earn good returns through the corresponding index or stock decline. If the stock loses money, Baby Bear can make money, greatly enhancing the risk resistance of the entire portfolio.
However, it is difficult to choose the right Baby Bear, so RockFlow has launched a more user-friendly filter. With just two steps, you can purchase the most suitable Baby Bear for your current position, helping you hedge risks with just one click.
In what scenarios should you consider purchasing Position SmartGuard?
If you have a large position and expect a short-term pullback in the future, but are optimistic about the long-term and do not plan to sell now, you need Position SmartGuard. If you are optimistic about a certain trend and are adding to a stock, but are afraid to buy at the top, it is also very suitable to buy Position SmartGuard.
How to purchase Position SmartGuard?
Firstly, you need to have a certain position, which is a prerequisite for purchasing Position SmartGuard.
Next, find the corresponding stock and click on "Position SmartGuard" on the details page.
First, choose the expiration date. The expiration date is the period that the Position SmartGuard can protect. If it expires, the Position SmartGuard will become invalid. Generally, choosing a period of 2 weeks to 1 month is more reasonable. If it is during the financial report season, at least the date of the financial report release should be covered.
Secondly, choose the target protection price, generally select a price range of 80% -90% of the stock price. When the stock price falls below the target protection price, the value of the stock position will continue to decline, but the Baby Bear you purchased will earn profits and make up for your position losses.
For example:
For example, in September 2023, a user bought 10 shares of Tesla at a cost price of around $242. Although it had risen for a period of time with some profit, after the release of the Q3 financial report, he felt that the short-term volatility might continue, so he decided to buy Position SmartGuard in mid-October. Buying Baby Bear helps him reduce volatility and try to lose less or even no money during the decline.
He understands that buying a Baby Bear requires good liquidity, suitable maturity date, and exercise price. After research, he decided to buy a Baby Bear with an exercise price of around 15% off, the target price of $205 and a maturity date of November 3rd. The current price is $155.
How does this Baby Bear protect against the volatility caused by holding 10 shares of Tesla (worth $2420)?
Scenario 1: Around October 25th, Tesla fell another 15% to $207 per share compared to the current price, and the value of holding a Baby Bear would rise to $661. The offset loss (242-207) * 10 = $350, but instead earned $156. This is undoubtedly much better than not buying Baby Bear and losing $525 directly.
Scenario 2: Around October 25th, Tesla's price dropped by 5% to $219 per share, and the value of a Baby Bear would rise to $390. The offset loss (242-219) * 10 = $230, resulting in a profit of $5. This is still very cost-effective compared to losing $230 directly without buying Baby Bear.
Scenario 3: By October 25th, the price had basically not changed, and the value of a bear was $66. At this time, his loss was only the premium paid for buying Baby Bear, 66-155 = $89. That is, a loss of $89. This is equivalent to buying insurance, covering the possible losses in the first two situations.
Overall, if you are bullish on Tesla in the long term and hold a certain amount of stocks, you only need to spend a reasonable price to buy Position SmartGuard as a hedge to minimize or even avoid losses during the short-term decline of the stock.