Bought - SPY March $235 Puts





This week, I bought Put options on the S&P 500 Exchange Traded Fund (SPY) with SPY currently trading at $260 per share. 

As a trade, it would look like this: Bought 5 SPY March 15, 2019 $235 Puts @ $3.25

What it means:

1) I bought Puts - so I'm betting the SPY goes down in price. 

2) 5 contacts, which is the equivalent of 500 shares of SPY 

3) March 15, 2019 is the expiration date of these options. They will become worthless after this date. So, this bet is "on the clock". Every day that passes is one day closer to their death. 

4) $235 is the strike price. The closer SPY gets to $235, the more valuable my options become and vice-versa. Note - SPY does not have to reach $235 for the options to have value. It's the amount of value that will change depending on market conditions. 

5) Puts - means I'm betting the SPY will go down in price

6) $3.25 - the amount per contract I paid for each option. So, if I bought 5 contracts, and each contract equals 100 shares, my cost outlay is (5x100) x 3.25 = $1,625

If I had bought 500 shares of SPY as a straight trade, the outlay would of been 500x$260 (the current price) = $130,000. No thank you. 

7) Finally, I'm not locked into this trade. I am free to sell these options at anytime. I do not need to wait until March. In fact, I intend to sell this position way before expiry. 


So here's why I did it.
Stock market downside insurance protection. I'll explain this below.
I chose these particular Puts because the volume on them were the highest out of all of the Put contracts in March. This particular contract had more volume than both Calls and Puts for this option strike and month. Many people are in this trade.

Now, I will always be long the stock market through my retirement accounts. I am satisfied with all of the holdings in my accounts. This does not mean that the stock market will go up. It does mean that if my positions go down in value, I am confident that they will come back in time. I would even consider adding more to the positions. Buy low, sell high.

That being said, my thinking is that the stock market and the economy is in a clear bearish trend.  The overall stock market has declined to the point where technical levels have been breached. The risk of the marketplace has intensified over the last couple of months and I do not see this changing anytime soon. There is so much uncertainty across the board both domestically and internationally, it's hard to keep track of. There are at least ten other concerns that are pestering the marketplace. Where are the positives?

I see only one. A possible trade war resolution with China. OK, even if this does happen, then what?

The stock market has gone up almost nonstop for the past 10 years or so and a correction to the overall marketplace is quite natural. However, there are many younger people in the stock market who have never been through a stock market correction. My bet is that they will panic and jump out of the market. It's absolutely the wrong thing to do, but when the going gets tough, people sell first and ask questions later.  I've already seen headlines for record outflows out of the stock market and equity funds. There have been many of these headlines throughout this year.

So, I expect more selling in the market. A lot more. To capitalize on this panic selling, I have placed a small bet.  If I'm right, the valuation of my overall portfolio will go down just like everyone else, however I will win on my Put bet. If I'm wrong with my assessment, I will lose my insurance bet, but my overall portfolio will go up.

I like the risk-reward in the current market environment in buying these Puts. Time will tell how things go.

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Disclosure: I am long the SPY $235 March 15 Puts

All I ask is that if you enjoyed this article, would you please share it with others. I enjoy meeting new people and more importantly, making new friends.

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My opinions and strategies of the are not intended to ever be a recommendation to buy or sell a security. The strategies I use have worked for me and it is 100% for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.


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