I clicked on an ad promising to “protect my portfolio without selling a single share”…
Their words, not mine…
What I discovered was something very different…
A leveraged bet against the S&P 500 - and the default leverage selected was 7.8 to 1.
You may have seen the same ad… because it’s been running in a lot of stock market newsletters lately.
It’s from Kalshi, one of the massive prediction market operations that have seemingly partnered with every brokerage on Earth…
Their latest predatory product is something called the US500 Perpetual.
It tracks the S&P 500… and you can bet on it going down much easier than trying to short the market the traditional way…
The pitch is simple…
Keep your stocks, short this perpetual thing, and if the market falls the short makes money to cushion the blow.
But at 7.8x leverage… you’re put up $1 for every $7.80 of exposure…
Or if you want to look at it another way… every 1% move in the wrong direction costs you 7.8%.
With 7.8% leverage on a short position… if the market rises 13% you get wiped out.
Is a big one-day move realistic?
Think back to April 9, 2025, when the market had its best day since 2008.
Most investors were celebrating... anyone holding this hedge at the leverage I was offered would have watched about three quarters of their money disappear before the closing bell. Good news wiped them out.
Then it gets worse… because when your cash runs low, the exchange closes your position for you… so the protection is gone.
Then if the crash you were worried about arrives the next week, you face it with nothing - SO YOU LOSE TWICE!
Real protection works differently.
When you buy a put option, you pay a fixed price upfront, like an insurance premium. That is the most you can lose.
More importantly, nobody can close it on you, and a rally costs you the premium and nothing more.
That’s a proper hedge, not this crap that Kalshi are serving up…
Please, no leverage - especially at a time like this
Oliver