Stocks are moving higher today following a sharp pullback last week that continued on Monday and Tuesday. With a Federal Reserve announcement scheduled for 2:30 p.m. Eastern, I think it’s wise to hedge our VanEck Vectors Semiconductor ETF (SMH) and Target (TGT) positions by purchasing puts.
Note that these are purely defensive positions. The goal is for them to expire worthless. However, in the event that the market sells off sharply on a larger-than-expected rate hike or particularly hawkish comments from Fed Chair Jerome Powell, these puts could be very profitable.
SMH Jan 2023 (1/20/23) 250 Call
Current Stock Price: $205.80
Cost Basis: $46.75
Action: Buy to open the SMH Sep Week Four (9/23) 195 Put for around $0.75, but adjust as needed to buy a put today
New Cost Basis: $47.50
TGT Jan 2024 Monthly (1/19/24) 150/Sep Week Five (9/30) 180 Call Spread
Current Stock Price: $162.84
Cost Basis: $48.64
Action: Buy to open the TGT Sep Week Four (9/23) 155 Put for around $0.47, but adjust as needed to buy a put today
New Cost Basis: $49.11