It's a form of diversification, hedging your portfolio against a very unlikely negative outcome. 99% of your portfolio will perform well in a strong market and poorly in a down market, so you offset this and effectively narrow the range of possible outcomes by making a very small bet that is most likely going to be a loss, but will post big profits if the rest of your portfolio does badly.Tail risk funds like Universa generally suggest that investors put 1% of what they put into stocks into these hedges. A fund that spends $100 million on equities would put about $1 million to $1.5 million into a tail-risk strategy.
Different "costs" of protection. A covered call (selling a call option for some prive above the current price of the underlying security, while holding the underlying security in the same quantity as represented by the option, i.e. 100 shares with a single option contract) gives you cash up front in return for giving up potential upside. It's an income generation strategy and in essence "enhances" the return of your position for most likely outcomes, but if the security price moves sharply up, your shares will get called and your gain is capped at the difference between the current market value and the strike price, plus the option premium you earned. It offers some downside protection in terms of the initial premium (which can be thought of as "absorbing" a downward movement of up to the amount of the premium) but it won't protect you against a catastrophic drop.Just out of curiosity, what would be the advantage of that over a covered call?
By the way, before you do that I'd spend some time thinking about your risk tolerance and what you want from a retirement investment account - plenty of professional investors DON'T do anything like this (my firm doesn't), and depending on your appetite this may not make sense for you.I should talk to my investment guy and see where I'm at with something like that then. Better safe than sorry. Ive got no idea if ive got such an investment. Thanks Drew!