From the May 2013 issue of Futures Magazine • Subscribe!

Using the “platinum hedge” to stretch out profits

This is not a “world is coming to an end” play. Rather, it is a fairly easy to accomplish position (if set up correctly) that will do a superior job of hedging positions over the long run when compared to almost any other strategy.

Also, those who like collars can sell the May 450 call at $13.30 to offset the cost of the butterfly, just like collar traders sell a call to offset the price of the naked put (see “Long stock, long butterfly & short call”).

When constructed correctly, the platinum hedge can offer the same amount of protection as a married ATM put while providing all the benefits and cost savings of a far OTM put hedge. Combine this with a short call to pay for the position, and you have something dreams are made of. Goodbye fear — hello greed!

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