Today we discussed the current market environment and how to generate smaller and less risky hedges. We know that at times the program can become more complex and try our best to simplify everything that we do. We don’t really do beta weighting and delta neutral hedges but that is something to consider learning about and initiating in your own portfolios for the coming months. We keep the program more centered toward buy & hold and try to collect income consistently. Remember that the most important aspect of it all is that markets will eventually recover to new all-time highs. The problem is that it often takes years and falls many percentage points before that happens. So, keep the position sizing reasonable and risk management game strong!
Today we initiated a put butterfly spread in SPY. This is planting a seed and expectations that we will eventually make new new lows before the September expiration arrives. This is not really a hedge of any sort because it has a very limited risk/reward.
Buy to open: SPY Sep 19th (monthly) 490.00 strike put (ratio of 1)
Sell to open: SPY Sep 19th (monthly) 460.00 strike put (ratio of 2)
Buy to open: SPY Sep 19th (monthly) 430.00 strike put (ratio of 1)
Debit: 2.79
Max risk = 2.79 or $279.00 per spread
Max reward = 27.21 or $2,721.00 per spread
We sold a bear call spread in XLE and used the income to purchase puts in the same asset. In that way our insurance is paid for by the market. However, we still have max risk of the spread, in this case 3.00 x 3 contracts =$900 max risk.
Buy to open: XLE May 16th (monthly) 85.00 strike call
Sell to open: XLE May 16th (monthly) 88.00 strike call
Credit: 0.70
Buy to open: XLE May 16th (monthly) 60.00 strike put
Debit: 0.69