Vest Financial Group couldn’t have timed it better. A day before the latest stock market dive began the company introduced its “Vest Protective Strategy,” offering investors and advisors a way to hedge downside risks of individual stocks and ETFs via an online platform.
“Since the announcement we’ve had traffic we hadn’t seen before,” says Karan Sood, co-founder & CEO of Vest, explaining that the product was available in beta for advisors before the official launch on Aug. 18.
Vest’s protection product uses options contracts to hedge market risk at a price level that the investor chooses. For example, an investor owning Apple (AAPL) stock, now trading near $107 a share, could choose a strategy that protects against the stock falling to $75 a share or to $50 a share, or even zero. The cost of the protection — the premium — increases as the price target declines, and the downside protection, therefore, increases.
Investors can hedge individual stocks or ETFs that they already own or create a new position in a stock or ETF along with the downside protection using the actual underlying securities or synthetic versions created with options.
“In most cases the synthetic version is more cost effective — less transaction costs,” says Sood.
Advisors can also create entire leveraged portfolios using the Vest platform. The platform also allows investors to leverage the upside of a particular stock or ETF one, two or three times.
Once the investor or advisor chooses the particular parameters of the downside protection they want — and possibly the upside cap — they will see an explanation of all the particulars of the strategy they have just purchased.
Vest currently offers protection on 700 stocks and ETFs “across the universe,” says Hood. The cost is a 50 basis point (0.5%) annual fee plus the transactions costs to buy the options and stocks. Vest, which is a registered investment advisor, works with several brokers including TD Ameritrade to do the trading and is currently working to add its offering to existing platforms of brokerage firms.
Vest is marketing its product as an easy, transparent way for investors and advisors to hedge portfolios compared to buying individual options, but it isn’t the only option.
Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a recent note suggested several strategies that investors can use to limit risk in a volatile market, including stop loss, stop/limit, trailing stop and bracket orders. They essentially limit losses to a specific level (stop) that investors choose so long as they’re executed, but that is not always the case.
“In a rapidly falling market, or a market that gaps in price overnight, there is no guarantee that the order will execute or that the execution prices will be the same price as the stop price,” writes Frederick. Limit orders offer additional protection because “they allow you to set a minimum price you’re willing to accept when selling a stock” and “a maximum price you’re willing to pay when buying a stock,” writes Federick, but again he warns that there is no guarantee of an execution.
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A “distressing loophole in federal law” allows youth to purchase the newest addition to the cigarette market without verifying their age.
A study in North Carolina, said DeLauro (pictured), asked 98 youth aged 14-17 to purchase e-cigarettes online. Only 5 of the orders were rejected based on the consumer’s age. Some of these orders came from other states and even other countries, as not every state prevents purchase of e-cigarettes by a minor. Easy access to the product has allowed 17 percent of middle and high school students to access and use the product, according to research cited by DeLauro. In Connecticut, the statistic rises to 25 percent.
Stephanie Barnes, executive director of the Boys and Girls Club, said the new legislation would align itself well to a program her agency runs: 
Esty said the progression from e-cigarettes to tobacco is evidence that the cigarette markets are manipulating young users, getting them addicted to nicotine thus encouraging them to transition to other forms of cigarette.
Suchitra Krishnan-Sarin, associate professor of psychiatry at Yale School of Medicine, described e-cigarettes as a “whole other challenge.” Youth have been attracted to the innovative nature of the product and the targeted marketing, she said, and it is leading them to the more harmful drugs found in tobacco cigarettes. She said it is imperative the product is regulated.
Roy Herbst, chief of medical oncology at the Yale Cancer Center and Yale-New Haven’s Smilow Cancer Hospital, added that the only way to combat lung cancer is through prevention. When e-cigarettes have proven to lead to tobacco, regulating e-cigarettes has to be the next step, he said.
This legislation comes days after DeLauro called for the legislature to institute a policy that would prohibit use of tanning beds by minors. President of the Connecticut State Medical Society Robert Russo, who was present in discussions of the tanning beds legislation, expressed his support for the regulation of e-cigarettes. He explained that, as with tanning beds, when something is found to have harmful effects on adolescents, some companies find a “go-around” option to keep their product in the youth market. E-cigarettes are the “go around product” for tobacco cigarettes, he said.
The two bills together, DeLauro said, are part of a wider mission to help protecty oung people. So, turning to the youth from the Boys and Girls Club in New Haven, she asked them what they thought. Z’hane Ellisom took the podium to enthusiastically support the legislation. Her peers continued to ask questions of the two Congresswomen about the dangers of e-cigarettes and the science behind the legislation. DeLauro told them scientific research supporting the bill means it’s a “no brainer” it will pass.