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What shall someone do to prepare for a market crash? Either a partial, referring to e.g. a financial crisis like 2007 - 2008 or a full crash, for example after a war or currency reform (being lead by a Hyperinflation)?

Is there any way to protect oneself from such scenario?

As absurd as it sounds, but I've always feared that one day - in the next, let's say, thirty years - such a crash occurs and I sit there with nothing, despite the fact that I've worked my whole life for a currency which doesn't hold any actual value.

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  • $\begingroup$ Although not a quantitative finance question, the easiest ways to protect yourself against market crashes are 1. Buy put options (expensive, especially if you don't know when the crash is going to happen) and/or 2. Diversify your investments (a cheaper alternative). $\endgroup$
    – user34971
    Aug 17, 2020 at 7:40
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    $\begingroup$ I think, globally diversifying your portfolio is a good start (stock prices most likely will go with Inflation). Well, world wars are imo a kind of systematic risk which you cannot hedge, not even with tail risk measures (who should pay you out if everything is destroyed?) $\endgroup$
    – simzoor
    Aug 17, 2020 at 7:41
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    $\begingroup$ There are different approaches to protecting profits and reducing your losses in a bear market and they offer varying degrees of protection. Some will even make you money. Read my answer here $\endgroup$
    – Bob Baerker
    Aug 17, 2020 at 11:16

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If you are considering options then you can buy long puts ("teenies"). You can do this on individual stocks, or more commonly on etfs or indicies.

Hedging comes with a cost though: You need to pay the option premium at a regular interval. Which means buying the hedge, watching it decay and rolling it (i.e. closing and opening a new one).

There are tradeoffs between the option strategy you choose and the costs and benefits in various scenarios. A simulation can be helpful in designing a put protection strategy. Here for ex. you can find a small study which compares multiple options contracts hedging powers and cost at various market crashes: https://gitlab.com/brentp/mesosim-stuff/#lp-powerpy

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Further to Frido Rolloos's comment, look into Options on Leveraged ETFs.

In particular, put options on Leveraged Bull ETFs on the major stock indices. Or call options on Leveraged Bear ETFs on them.

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