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apr10,2012 - mike revisited this trade and essentially said you can still use this strike but make it a put spread instead of put only, here is the 10apr optionsaction segment 10apr optionsaction segment. recommending:
Buy the Jun133 put for $4.00
Sell the Jun 120 put for $1.40
debit of $2.60 ($260 per onelot)
lets see how his trade from last week looks tonight:
4apr was buy the Jun133 put at $2.15, today worth about $3.45 so about $130 gain per onelot.. so with the SPY down about $400 (100share)..his "hedge" gained $130. The hedge will increase in value the closer it gets to opex which is still a ways away.
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original post
apr4,2012 mike once again came up with a trade i do not agree with, neither did Pete. here is the video clip from fast money tonight Options action segment . mike recommended this as a portfolio hedge:
Buy the June 133put on SPY at $2.15..ill use the closing price.
Pete said the same thing i was thinking..its too far away and costs too much and too far out. mike noted that if SPY drops this put will increase in value and would increase in value as volatility increased. true enough. But using Trademonster analyse Tab http://www.trademonster.com/ , i show that as of today, for every $1 drop in SPY this put will increase in value by $26..ie if you have 100 shares of SPY, it drops $1 you lose $100 but make $26 by put increase for every lot. not exactly a good hedge to me.. only 25% of your loss is hedged.
this is likely a trade but at June opex SPY would have to drop to under 131 to break even. long way to go.
When i put on a hedge i want it to start working right away and be as close to dollar for dollar in protection. so instead of paying $2.15 ($215 per lot) i would look at something closer time wise and a put spread to reduce cost. I would go with May opex.. catches the sell in may go away mantra, also catches earnings season if your thesis is that earnings will disappoint. if you have budgeted the $215 from mikes trade i would instead look at the:
Buy the May 141 put for about $3.40
Sell the May 135 put for about $1.40
net cost is $2.00, max gain $4.00 so with SPY at 140ish today, i make $4 if its at 136 or lower at may opex. better hedge i think
if your thesis that we may have a top in, you can make this a put spread collar by also:
Selling the May 143 call for about $1.30 bring the total debit down to .80ish ($80)
i dont trade the SPY, i focus on individual stocks but this is an alternative to mikes trade.
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