So I would say each portfolio is different. Are you trying to avoid constructive sales (i.e. tax consequences) on a long position in Google? Is your portfolio comprised of index ETFs? Dividend-heavy stocks? Compounders? Are you sitting on heavy capital gains (or losses)? A smart hedge will take these into consideration.
I'll respond generally:
The true hedge is to buy a put option. Volatility is very high these days so option prices are expensive - so if buying puts you will be paying a premium for high implied vol.
You'll want to be aware of how vol is priced across strikes (i.e. the vol smile) - again generally, the volatility premium goes up the further you move away from the at-the-money price - so deep ITM or OTM options have a high premium for volatility as a % of overall price.
Same goes for volatility over time - i.e. the vol term structure. Combine the smile & term structure, and you get the vol surface. Generally, vol premiums drop as you approach expiration.
Other options that kind of accomplish the same:
You can hedge a long position by purchasing a deep ITM LEAP call covering the same notional amount and selling the stock. This effectively gives the same upside exposure (above the strike price) and frees up 50-60% of the position to cash. Really a risk-reduction approach rather than an explicit hedge.
(Also you can create a similar position by keeping the long stock position, taking out a margin loan against 50% of the position, and buying a put option to protect your downside from a margin call. So, multiple ways to extract cash from a long position while maintaining identical exposure.)
You can also sell OTM calls at prices you are willing to sell; this again frees up cash but now you are trading upside.
And, whether you are selling calls or buying puts, you can layer on top - taking opposite positions in different strikes and/or tenors to offset either the risk you are taking (when selling calls) or the premium you are paying (when buying puts). Ericopoly wrote a few good posts recently on why these spreads can be a bit hairy in practice.
Something like, selling June/July calls (which you expect to expire worthless as the world is recovering from COVID); and purchasing December of January calls which you intend to exercise as the world has recovered and earnings yields are below 5%. But that's a hairy bet - a lot can go wrong.
For me, I was sitting on long positions in Berkshire and Visa which paid little/no dividends. I wanted to free up cash in case the index hits 2000 and below. So I sold half my stock, bought deep ITM LEAP calls for the same notional amount to free up that cash. And I also sold deep OTM calls on the remaining half of stock which I kept, but those expire in June.
With all option strategies it's good to write down exactly how you can lose all your money. Helps structure the position.
For the trade I made, if the index stays here for 3 months, my OTM options expire and I pocket that premium. My deep ITM options still have 2 years left.
If the market skyrockets, well my ITM options are now worth a bunch; and if I get called on the OTM position - well I've sold at a good but not great return.
And if the market tanks over the next 2 years such that my ITM calls are now OTM - well I'll will have pocketed the OTM call premiums, and the money I raised from this trade I can now put to work. So it will hurt, but hurt less than if I was fully exposed.
Essentially I've traded short term upside for long term downside protection - and was able to get a lot more protection than usual due to the crazy high vol premiums when I sold the OTM calls.
For you assuming you're sitting on a 100% GOOG portfolio with very large embedded long term capital gains, for which you want to avoid any sales with tax consequences. You'd want to map out how the above positions would work but instead of using options on GOOG, you find a highly-correlated asset that you expect to maintain that correlation through future downturns. And you'll have to take tax considerations into it.
