Q. Dear Josh, with the general election result looking increasingly tight is there any way to profit from such uncertainty?
A. The market hates uncertainty so it is likely to frown upon any indication that we are heading towards a hung parliament. That said, the FTSE 100 is such an international index that the very short-term impact may well be limited.
We would nonetheless expect some short-term volatility as marginal seat results roll in, but at this stage the market has already begun to price in the possibility of a hung parliament or a small working majority for a government of any colour.
Q. Dear Josh, with the Greek crisis appearing to spread, what other markets should I be careful of?
A. The Greek crisis is clearly having a major impact on nearly all the major Eurozone stock indexes, especially with the growing fears of contagion spreading to Spain and Portugal. Although a €110bn deal for Greece has been agreed, markets have remained jittery and they are expected to stay wary for a little while longer.
This means that investors will need to tread carefully and not over expose themselves. One good way spread betters have been doing this recently is by having long and short exposure over a basket of different European instruments, enabling them to spread their risk.
Q. Dear Josh, I am worried about my stock portfolio as we seem to heading into uncertain times again. Is there a product that will help me protect my portfolio but with limited downside?
A. With Europe and the UK looking somewhat uncertain at the moment, it’s understandable that many investors are looking for insurance on their portfolios. Some may also be looking for a less risky way of taking advantage of major market movements.
A financial product which can achieve both would be the purchase of an option on a stock, index or commodity.
This product allows you to gauge your total exposure to a market yet still have unlimited upside potential if the market moves with you. This is possible due to the gearing effect you can achieve using options.