Our most recent S&P 500 (SPX) hedges — the SPX Jan Monthly (1/15) 3150 Put and the SPX Jan Monthly (1/15) 3250/3200 Put Spread — are on track to expire worthless, so I am recommending new defensive positions.
We will continue to track them as ongoing positions, but you can initiate one of these hedges even if you were not in a previous one. Just be aware that these are purely defensive positions. The goal is for them to expire worthless. They will only result in a profit is the market sells off sharply.
Hedging has become increasingly expensive in the face of the market’s advance. After spending some time looking at past movements in the S&P 500, I have noticed that, with a few exceptions, there were non-technical warning signs preceding corrections, such as the euro crisis and the pandemic.
So, for this coming week, I am going to employ a different tactic. Due to the upcoming presidential inauguration and the threat of violence in Washington, D.C., and state capitals, I am recommending short-term hedges that expire next week. After that, we may return to longer, multiweek hedges.
While there is not a ton of liquidity in the Jan. 22 option series, the spreads between the bid and the ask are manageable.
If you are new to this kind of hedging, please check out my Coaching Session on Hedging Your Portfolio before making the trade.
Current Index Price: 3,758.53
Net Debit: $7.95
Action: Buy to open the SPX Jan Week Four (1/22) 3450 Put for around $3.70
New Net Debit: $11.65
SPX Bear Put Spread
Cash in Hand: $4.20
- Buy to open the SPX Jan Week Four (1/22) 3450 Put for around $3.70
- Sell to open the SPX Jan Week Four (1/22) 3400 Put for around $2.85
- Set initial debit limit at $0.85
New Cash in Hand: $3.35