Hello Investors,
First a word of caution. The “hedge” trades we did today are big and expensive. We normally don’t risk -$2,086 on trades but that is what we have done today. We keep our position sizes very small and educational on purpose. Today we are spending quite a bit of money to insure our portfolios. The amount of contracts bought and money spent is NOT right for everyone. If you are completely uncomfortable with $2,086 losses, then obviously only buying 1 or 2 spreads vs buying 4 total would be much more reasonable.
We bought 2 contracts of each of the following spreads.
Buy to open: SPY May 17th (monthly) 485.00 strike put
Sell to open: SPY May 17th (monthly) 465.00 strike put
Debit: 4.08
Max risk = 4.08 or $408.00 per spread
Max reward = 15.92 or $1,592.00 per spread
Buy to open: SPY May 17th (monthly) 490.00 strike put
Sell to open: SPY May 17th (monthly) 460.00 strike put
Debit: 6.35
Max risk = 6.35 or $635.00 per spread
Max reward = 13.65 or $1,365.00 per spread
As detailed in class, these are very high risk hedges! Consider a much smaller position size than 4 total contracts. Our total losses on these (-$2,086) could be much larger than we normally take in the Trading Mentors program.
Have a great week!