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A Note About SPX Hedging

I said in yesterday’s Income Masters Live Trading Session that I would be putting on a S&P 500 (SPX) hedge ahead of today’s Federal Reserve announcement. But I have decided against it due to the high cost. Instead, I have chosen to hedge most of our individual positions.

Given that we tend to trade high-beta stocks, it’s possible some of our names could decline even if the market stays flat or goes up following the conclusion of the Fed meeting today, potentially producing a profit on the purchased puts that will help to lower our net debit/cost basis on some of the positions. However, please keep in mind that we purchased these puts primarily as hedges against a sharp sell-off in the market.

If you are still inclined to hedge the broader market as extra insurance, you may want to consider buying a SPX put with a 3500 strike or creating a 3500/3450 bear put spread that expire on June 24.

The value of these protective positions could spike on a sharp market downdraft over the next few days. But be aware that if the market moves up, you stand to lose the full cost of the position.

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