Despite being massively skeptical of the stock market over the last year, I still have more long positions than short positions (dividend stocks, gold stocks), so as the S&P crept over 1200 and the upside momentum started to fail, I put some downside protection in place.

• FXP – UltraShort China ETF - I’ve actually been holding this for about 2 months and is starting to really pay off as the Chinese market has rolled over – Chinese market and US markets are pretty much up and down together although the timing isn’t always exactly the same – we’re a global economy.
• SDS – UltraShort S&P 500 ETF - I add this during the rally after the flash crash.  I thought this was a sign of the market heading lower and it turned out to be right.
• Put option on GDX - Buying a put option allows you to hedge against a drop in one of your holdings.  If you buy a single put contract for $2.00 per share (100 shares x $2 = $200), you have a $200 loss risk for downside protection.  This is a worthwhile option in my opinion since I hold significant gold stocks and holdings; if gold moves lower during this correction (which it’s not today), my put option will offset some of the losses.

As you know, I’ve had a significant percentage of my portfolio in cash for over a year, so I’m still poised to take advantage of lower stock prices.  By adding the above downside protection instruments, I have hedged against losses in my long positions.  I will continue to watch the market and unwind these positions at some point – but, not yet.