Hedge with SPY Put Spread for Downside Protection

2 months ago

Mark Roussen

"I'm keeping a close eye personally on that 650 level when talking about the SPY ETF where investors have nearly 90,000 contracts open at that particular strike. And a move lower to 650 on that SPY ETF would equate to a pullback of nearly 3 and a/4%. The 640 strike would require a near 5% pullback from current levels, which would put us close to that 10% correction level. So, if you wanted to hedge your portfolio to protect it in some degree from any downturns, you could utilize an option strategy like a debit put spread. And this is one that I recently added into. It's a lowcost one. You could buy to open the 1219 650 put and at the same time you could sell to open the 1219640 put. So we're buying a put and selling a put. This spread would cost you a net difference of 160 or 160 per contract. And if the SPY ETF were to fall down to 640 or lower, your max profit on this investment would be 840. Again, if the S&P 500 stays above 650, hopefully that means the rest of our portfolio is doing well. Thus, this option contract would be a loss."

The speaker outlines a defensive hedge strategy using a debit put spread on the SPY ETF to protect against a potential market downturn. Key support levels at 650 and 640 are highlighted, with specific details on the cost of the spread and potential profit if SPY drops, serving as an actionable trade call for short-term market protection.

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