The Paradox That Could Cause An August Crash

How you can stay invested and still sleep at night.

Portfolio Armor

Jul 16, 2025

The Paradox That Could Cause A Market Crash

Peter Schiff put it in pithy terms on X:

Stay Invested, Sleep at Night

Markets have a way of punishing complacency. When everyone crowds to one side of the boat, even a modest wave can capsize it. With tariff headlines swirling again and pundits warning of an August correction, many investors face a familiar dilemma:

Stay in the market and risk a nasty drawdown, or head to the sidelines and miss out if the sell‑off never comes.

Portfolio Armor’s Hedged Portfolio Method offers a third path—participate in upside while strictly capping downside risk—and the approach just delivered a real‑world proof‑of‑concept during this spring’s volatility.

The Hedged Portfolio Method in a Nutshell

Pick Your Risk Budget. You decide the maximum drawdown you’re willing to tolerate over the next six months (our back‑end algorithm works with horizons up to six months because that’s the sweet spot for option liquidity and cost).
Maximize Expected Return. Portfolio Armor’s algorithm sifts through thousands of securities every day, ranks them by estimated return, and constructs a concentrated basket that fits within your risk budget once optimally hedged with options.
Automated, Option‑Based Hedges. Each position is wrapped in either an optimal put or an optimal collar (put + call) that limits its downside to your chosen threshold at the lowest possible cost.

Two Practical Tweaks the Tool Makes

Larger Portfolios (> ≈$100k). If your capital is large enough, the core of the hedged portfolio will usually come straight from Portfolio Armor’s daily Top 10 names—the stocks and ETFs with the highest estimated six‑month return.
Smaller Portfolios (≈$30k to $100k). The algorithm screens out high‑dollar share prices (think $500+ stocks) so that it can buy round lots (multiples of 100 shares). That keeps hedging costs efficient while still pulling from the same alpha engine.

(The minimum account size for the method is $30,000; below that, round‑lot constraints make precise hedging impractical.)

Case Study: A $30,000 Portfolio Shielded Against a 13 % Drawdown

On January 9, 2025 a user asked Portfolio Armor to deploy $30,000 but cap any six‑month loss at ‑13 %. Here’s what the algorithm presented him with. Hedged positions in round lots of Robinhood Markets (HOOD 0.00%↑) and Rubrik (RBRK 0.00%↑), with a tightly collared position in the iShares Bitcoin Trust ETF (IBIT 0.00%↑) used to absorb leftover cash from the rounding-down process.

Six months later, despite a sharp market dip in March/April, the portfolio’s value stood at $36,631—a +22.1 % gain (≈ 49.6 % annualized IRR) versus +5.9 % for SPY over the same span.

The fully interactive performance chart is here.

The hedges never needed to be rolled or tinkered with—the algorithm front‑loaded the protection on day one and let compounding do the rest.

Why the Method Worked

Concentrated Beta With a Safety Net. Because each position is individually hedged, the portfolio can stay concentrated in high‑alpha names instead of over‑diversifying.
Dynamic Option Pricing. When call premiums are rich, collars can pay for themselves (IBIT’s hedge actually generated cash).

How to Build One Yourself

If you're a Portfolio Armor web app subscriber, visit the Hedged Portfolio tool and enter:
- Your dollar amount (≥ $30k)
- The maximum drawdown you can stomach (e.g., 9 %, 13 %, 20%, etc.
In seconds you’ll get a full trade ticket—stock/ETF tickers, option strikes, share counts, and exact hedge costs.

If headline risk turns into reality in August, you’ll already know exactly how much you can lose. And if markets shrug it off? You may still have meaningful upside—just like the January portfolio did.

Risk never sleeps, but with the Hedged Portfolio Method, you can.

In Case You'd Rather Stay Up

If you want to swing for the fences betting on companies to cure diabetes and that sort of thing, you can stick with this Substack, where we roll the dice a bit.

If you want to do both, send me a message and I'll give you a discount (A free month of the Substack if you join the website, or $30 off your first month of the website if you're already a paid Substack subscriber).