As you know the SPY reversion to mean systems have taken 2
entries. It's possible that the market bounces from here under that
scenario Steve showed below, but it's also possible that we could
go 100 or 150 points lower over the next 1 - 2 weeks in that weekly
chart scenario I showed.
I wanted to ask you option experts your opinion on some
protection strategies. You obviously give up alpha with protection
but is there any strategy that makes the most sense to do if one
wished to add some protection: One option, pun LOL, would be to buy
some out of the money cheap puts. But the issue now is that with
the VIX where it is, nothing is really that cheap. And how far out
would you go? Jan 3rd far enough? And how low of delta? the Jan 3rd
430 points are trading for $6.15 at the moment.
Or is there some sort of collar or spreads, etc strategies.
anyway I know we have some option guys here so figured that I
would ask for informational purposes for now or in the future if I
ever were to suggest such a thing if I felt it warranted.
Posted by elementsix on 2nd of Dec 2021 at 11:44 am
SPY Hedging - With options being so expensive you are better off
SELLING calls against your long equity position (covered call). In
theory it is not complicated, but in practice it can be frustrating
if your position keeps getting called away as the stock jumps.
I regularly sell SPY covered calls; need to time well w/ cycles
to be consistently successful. Once correction has started premiums
drop and I dont find it worth time/risk for desired strike.
Your selling Vol w/ big tail risk if you have to cover during
unexpected runs/rebound. One bad trade wipes out many small
gains.
@pep8261 - can you give example of put spread you mention?
Thx.
yep - I know one fund that sells the covered calls against their
SPX position, then uses the premiums generated from selling the
calls to buy some put protection
You can buy 2 week out, .50/.25 (4x) or .50/.30 (5x) delta puts
spreads per 100 SPY with very little theta or Vega exposure (during
week 1). Lines up well with the time frame for an expected down
move.
Newsletter
Subscribe to our email list for regular free market updates
as well as a chance to get coupons!
SPY reversion to mean systems and option protection strategies
Posted by matt on 2nd of Dec 2021 at 11:06 am
As you know the SPY reversion to mean systems have taken 2 entries. It's possible that the market bounces from here under that scenario Steve showed below, but it's also possible that we could go 100 or 150 points lower over the next 1 - 2 weeks in that weekly chart scenario I showed.
I wanted to ask you option experts your opinion on some protection strategies. You obviously give up alpha with protection but is there any strategy that makes the most sense to do if one wished to add some protection: One option, pun LOL, would be to buy some out of the money cheap puts. But the issue now is that with the VIX where it is, nothing is really that cheap. And how far out would you go? Jan 3rd far enough? And how low of delta? the Jan 3rd 430 points are trading for $6.15 at the moment.
Or is there some sort of collar or spreads, etc strategies.
anyway I know we have some option guys here so figured that I would ask for informational purposes for now or in the future if I ever were to suggest such a thing if I felt it warranted.
SPY Hedging - With options
Posted by elementsix on 2nd of Dec 2021 at 11:44 am
SPY Hedging - With options being so expensive you are better off SELLING calls against your long equity position (covered call). In theory it is not complicated, but in practice it can be frustrating if your position keeps getting called away as the stock jumps.
I regularly sell SPY covered
Posted by mitchell on 2nd of Dec 2021 at 12:11 pm
I regularly sell SPY covered calls; need to time well w/ cycles to be consistently successful. Once correction has started premiums drop and I dont find it worth time/risk for desired strike. Your selling Vol w/ big tail risk if you have to cover during unexpected runs/rebound. One bad trade wipes out many small gains.
@pep8261 - can you give example of put spread you mention? Thx.
yep - I know one
Posted by matt on 2nd of Dec 2021 at 11:46 am
yep - I know one fund that sells the covered calls against their SPX position, then uses the premiums generated from selling the calls to buy some put protection
You can buy 2 week
Posted by pep8261 on 2nd of Dec 2021 at 11:26 am
You can buy 2 week out, .50/.25 (4x) or .50/.30 (5x) delta puts spreads per 100 SPY with very little theta or Vega exposure (during week 1). Lines up well with the time frame for an expected down move.