portfolio insurance

Portfolio Insurance

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.

2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).

Notes:

1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. By short selling index futures they offset any downturns, but they also hinder any gains.

2. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by a firm.

See also: Hedge, Index Futures, Selling Short, SIPC

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Portfolio insurance

A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.

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portfolio insurance

The futures or option contracts that serve to offset in whole or in part changes in the value of a portfolio. For example, a portfolio manager might sell short stock-index futures to hedge an expected decline in the market value of a portfolio.