French investors love their PEA (Plan d’Épargne en Actions) for good reason: tax-free gains after five years, no capital gains tax hassle, and a nudge toward long-term thinking. But when markets start wobbling and your portfolio bleeds red daily, that long-term philosophy feels less like wisdom and more like handcuffs. You can’t sell, triggering taxes and resettling the five-year clock feels like defeat. But you can’t hedge either, not directly. Your PEA sits there, exposed, while you watch your gains evaporate.
The PEA Paradox: Built for Longevity, Not Defense
The PEA is designed as a buy-and-hold vehicle. The French state wants you thinking in decades, not quarters. That design choice shows up starkly when you try to protect yourself from a downturn. The short answer many discover too late: you cannot buy options inside a PEA. No protective puts, no collars, no fancy spreads. The regulations simply don’t allow it.
This leaves investors with a menu of bad choices. Sell your holdings and lose the tax advantage? Do nothing and white-knuckle through the volatility? Or, as many experienced investors quietly do, open a parallel account specifically for hedging.
The Options Escape Hatch (Spoiler: Not Through Your PEA)
The research points to a clear consensus: if you want to hedge with options, you need a CTO (Compte Titres Ordinaire, standard brokerage account). Interactive Brokers, Bourse Direct, Saxo, and Degiro all allow French retail investors to trade options. Traditional French banks? Only if you’re in their private banking divisions, La Banque Postale being a notable exception that offers derivatives access through standard CTOs.
The mechanics are straightforward in theory. You hold your long-term positions in the PEA. In your CTO, you buy put options on indices that mirror your PEA’s exposure, say, puts on the MSCI World if that’s what you track. If the market crashes, the puts gain value, offsetting your PEA’s paper losses. You sleep better.
But the costs and complexities quickly pile up.
The Greek Alphabet Soup That Eats Your Money
Options aren’t insurance policies you buy and forget. They’re decaying assets. Theta, time decay, works against you daily. Your put loses value every day the market doesn’t drop. Vega, your sensitivity to volatility, means you overpay when fear is already high. Gamma, the rate of change of your delta, can move against you in ways that surprise even intermediate traders.
One commenter in the research put it bluntly: buying long puts is expensive, offers limited convexity unless you go far out-of-the-money, and remains a directional bet you can still get wrong. You don’t just need the market to fall. You need it to fall enough, fast enough, before your option expires worthless.
This is why experienced traders rarely just buy puts. They build collars, selling calls to fund the puts, creating a floor and a ceiling. Or they use ratio spreads and calendarized ratios, playing volatility rather than pure direction. But these strategies require understanding how the Greeks interact, and as one source noted, most books on the topic become “absolutely abstruse” without a math degree.
The ETF Hedge That Isn’t
Some investors suggest buying ETFs designed to rise when markets fall, like TAIL or BTAL, through call options. The problem? These ETFs don’t have liquid options markets. You can’t reliably hedge with them. You’re back to square one.
Others point to monetary funds available within the PEA itself. But moving to cash inside the PEA still counts as a transaction, and you remain exposed to the same problem: timing the market, which violates the original premise of not wanting to sell.
When “Just Sell” Is Actually the Smartest Advice
Here’s the controversial take that makes PEA purists squirm: sometimes the best hedge is reducing exposure. One voice in the research cut through the options complexity with simple math. If you have strong conviction the market will drop, selling a portion of your MSCI World holdings until your overall exposure matches your risk tolerance isn’t defeat, it’s rational position sizing.
The PEA’s tax advantage is valuable, but it’s not infinite. Protecting a 30% gain from turning into a 10% gain might be worth more than the future tax break on a smaller portfolio. This perspective rarely appears in official PEA marketing, but it’s how professional risk managers actually think.
The Collar Compromise
If you’re committed to options but want to reduce costs, the collar strategy deserves attention. You own the underlying in your PEA (or a correlated position in your CTO). You buy a protective put. To pay for it, you sell a call option at a higher strike price. You cap your upside but create a defined downside floor.
The trade-off is real: you limit your gains if the market rallies. But for investors more concerned with capital preservation than maximum growth, this structured approach beats bleeding theta on naked puts.
Bottom Line: Your PEA Needs a Bodyguard
The French PEA remains one of Europe’s best tax-advantaged accounts, but it’s not a complete portfolio solution. Sophisticated investors treat it as one piece of a larger puzzle. They maintain their core holdings in the PEA for long-term growth and tax efficiency. They operate a CTO alongside it for tactical hedging, rebalancing, and options strategies.
This dual-account approach isn’t cheating the system, it’s working within the system’s constraints. The PEA does what it does well. But when markets turn volatile, having a CTO with options capability isn’t just nice to have. It’s the only way to put on a seatbelt.
Before you dive in, do the homework. Read Hull’s Options, Futures, and Other Derivatives to grasp the mechanics. Paper-trade strategies in a simulator. And most importantly, size your hedges appropriately. A hedge that costs 2-3% of your portfolio during a crash is cheap. A hedge that costs 10% annually while you wait for a crash that never comes is just a slow bleed.
Your PEA is naked. A CTO with options might be the only wardrobe in town.
