Have you ever used Derivatives and Stocks together?

[Follow The Trend]

While both stocks and derivatives offer a degree of risk, as with any investment, you can use derivatives as an "insurance policy" for your portfolio.

For example, if you have a portfolio of Dow stocks, you could take out index options to protect you position if the market fell. You could also write options for premium against your portoflio, etc.

Have any traders used the two together to create / protect a position?

[Trade Up]

I have to admit that I am not really a derivatives trader.

The idea of investing in such short term investment instruments, which could disappear overnight, scares me. While I have made many mistakes in my stock investments, at least I have been left with some money to re-invest. With derivatives, this can be a different story.

I appreciate that it is possible to use derivatives as an insurance policy, but again, this does not really appeal to me.

[Soultrader]

As a intraday trader, I know of traders who will hedge their position by taking a long/short in the index futures and going long/short ETF's. This is a common strategy.

On a longer time-frame.... try holding an index futures for more than a few hours. It will scare you. I don't think I can hold on to the S&P's for more than a day. The YM... I can swing trade.