Portfolio Insurance

Portfolio insurance, also known as brokerage insurance, is an investment strategy of hedging a portfolio of stocks against market risk by short-selling stock index futures. This strategy bets on the stock market going up, while hedging against the risk that your investments will tank instead. In theory, by balancing stocks and options on stocks, you can achieve a risk-free portfolio. Using financial instruments such as equities, debts, and derivatives, combined in a way that protects against downside risk, portfolio insurance also applies to a portfolio of stock investments by using listed index options.