Spy Put Options (SPDR 500 ETF) Trade Alert – Building The Cash Cushion

Apr 25, 2014 | SPY ETF Hedge Strategy (SPY)

As regular readers know I use the Spy Put Options to take advantage of downturns in the market direction and to build a cash cushion that is designed to keep protecting my portfolio throughout the year. More downside action provides a bigger cushion. My portfolio this year is 1,250,000 but of that 300,000 is being used in the market direction portfolio and 250,000 is being used in the Apple Stock biweekly Put Selling strategy. Both of those strategies take advantage of movements up or down so they do not need protection. That leaves $700,000 that needs protection. A good correction can be 10% and while we have not seen that size of a correction, I like to plan for that type of correction. That means I need $70,000 of income to protect against a 10% loss.

While it is true that I invest primarily through selling puts, which in itself provides a degree of protection simply because I am usually holding puts that are out of the money (trading below where the stocks currently are trading at), it is easier to simply lump together the entire portfolio of $700,000 and then set an attainable goal which is $70,000 to protect the entire portfolio.

This year has been particularly choppy with lots of action to the downside as the market keeps trying to push through to new highs. It certainly looks like the market is having trouble doing just that, which is why the market direction down has been so profitable this year. The Spy Put Options are the way I handle the downside.

Let’s look at today’s two trades in the morning which are classic in both picking entry points and handling the overall trade.

Spy Put Options (SPDR 500 ETF) Trade – Apr 25 2014

This is a strategy trade alert and outline of determining entry and exit points for FullyInformed Members. Members can can login directly through this link or Members can sign in to the full members site here. Non-members can join here or read about the benefits of being a member.