How retail investors can protect themselves from black swan like event?
By controlling greed and have a very clear goal to be achieved from your investments, nearer the goal, shift assets from risky instruments to safer instruments time to time. Black swans are events known as unknown unknown, there is no way to predict it so be on safer side you must have a proper asset allocation to minimize in that kind unfortunate events.
Stop trading on margin
Nothing better than spreading your risk thin.
Suppose your capital is 1 lakh. Promise yourself that you will not exceed 10K per stock. However good the opportunity, dont exceed 10K per opportunity. So you will be having 10 stocks now. Out of those 10 even if 2 black swan events occur, you are still not wiped out. Usually people who blow their accounts keep all their eggs in one basket.
If you have concentrated position in a few selected stocks and want to have protection against the black swan event related to those stocks, then you might considering buying Deep OTM Options for those selected stocks and consider it as an insurance premium. You will not get any benefit for holding such cheap OTM Options, but in case of a black swan event, these will become jackpots and will cover up for the losses that you suffer in your stock holdings.
Expert Option Traders might be able to elaborate this idea in a better way.
Thanks and regards
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