Selling Weekly Options For Income Using The Spy Put ETF – Investor Questions

Jun 15, 2016 | Investor Questions, SPY ETF Hedge Strategy (SPY)

The Spy Put Hedge is a strategy I designed back in 1989 when the Spy ETF was introduced. I paper traded a number of different methods over a period of year and then settled on the present, Spy Put Hedge strategy trade. I have tweaked it here and there over the years but the essential strategy remains unchanged.

The idea of this hedge is to build up a cash cushion throughout the year to reach a point where I have earned enough cash to protect my portfolio against losses, from a decline in the stock market of 15% to possibly 20%. 2016 has been quite volatile to date and the Spy Put hedge Strategy has returned enough to protect my entire portfolio almost 16%. This has been an exceptional year for this trade.

Recently an investor, David sent some questions about use of the Spy ETF. Let’s review his questions and look at some possible answers. His question has been adjusted in places for ease of readings purposes. I have divided his question into parts and answered each part below that question.

Investor Questions:

PART A: Question: What is your opinion of trading weekly Spy Put options, in the money if the market moves against you at expiration?
Hypothetical Example: At expiration buy back and sell forward and down to the next lowest strike that yields approximately a .50 (cent) premium if possible to obtain going out 1 week or more if necessary.

To the above question I asked and received this answer: Can you better explain “if the market moves against you at expiration”. Do you mean each weekly expiration? David’s Answer: No not every week, only until the market recovers or I roll out of it.

FYI: I realize I am subject to being assigned at anytime while in the money; I do not mind writing covered calls if assigned; I always trade cash secured.

I asked: Also are you always planning on selling in the money put options and then if assigned, sell covered calls until exercised out? Do you have an idea of how much capital in total you would commit to this trade?

David Replied: No never want to go in the money, only when the market moves against me. If assigned yes I would write covered calls until I am cash out to sell puts again out of the money.

Now I am trading $100K as soon as I have the confidence and skill, I wish to add $500K.

Suggestions and Tips

I only trade the spy put hedge whenever the market direction is lower and while………..the rest of this strategy article is for FullyInformed Members. It is 3500 words in length and requires 9 pages if printed.

Selling Weekly Options For Income Using The Spy Put ETF

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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.