This is something that interests me as well. I have a solid portfolio of Australian stocks (mix of solid Blue Chips and growth mid caps), I mainly intend to hold them over a long period - 5, 10, 15 years or more - making occasional changes every now and then.
I am not too worried now, but if the ASX All Ords starts to get back towards 6,000 or beyond I would be looking to hedge somehow - options, warrants, VIX, CFDs, as the original poster mentions liquidity and volitility of some of these tools is a big problem.
