Vest Financial Group couldn’t have timed it better. A day before the latest stock market dive began the company introduced its “Vest Protective Strategy,” offering investors and advisors a way to hedge downside risks of individual stocks and ETFs via an online platform.
“Since the announcement we’ve had traffic we hadn’t seen before,” says Karan Sood, co-founder & CEO of Vest, explaining that the product was available in beta for advisors before the official launch on Aug. 18.
Vest’s protection product uses options contracts to hedge market risk at a price level that the investor chooses. For example, an investor owning Apple (AAPL) stock, now trading near $107 a share, could choose a strategy that protects against the stock falling to $75 a share or to $50 a share, or even zero. The cost of the protection — the premium — increases as the price target declines, and the downside protection, therefore, increases.
Investors can hedge individual stocks or ETFs that they already own or create a new position in a stock or ETF along with the downside protection using the actual underlying securities or synthetic versions created with options.
“In most cases the synthetic version is more cost effective — less transaction costs,” says Sood.
Advisors can also create entire leveraged portfolios using the Vest platform. The platform also allows investors to leverage the upside of a particular stock or ETF one, two or three times.