The 1987 market-crash strategy that promised protection by selling futures as prices fell was called portfolio insurance.
Portfolio insurance used computer models to adjust futures positions as the stock market moved. In simplified form, a falling market prompted more futures selling, which was intended to offset losses in a stock portfolio. The technique was popular among institutional investors before October 1987.
During Black Monday, heavy selling occurred in an already nervous market. Critics argued that portfolio-insurance trades amplified the decline by adding automatic sell orders, although the crash also reflected high valuations, macroeconomic worries, liquidity problems, and market-structure weaknesses.
Portfolio insurance did not literally insure portfolios against every loss. It was a dynamic trading strategy whose effectiveness depended on functioning markets and available buyers. The episode helped motivate later reforms, including coordinated circuit breakers and improved oversight of program trading.