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Hedging the S&P 500 with Lizard King

I’m buying a hedge.

music selection:  “Instant Karma!” — John Lennon

There is an important referendum in Italy over the weekend.  If the challengers to the current government win, it will likely signal that Italy will exit the Euro common currency.  Right now, it looks like the effort will fail but we have recently been surprised by Brexit and Trump.  There could be a lot of carnage in the major indexes if the vote goes the wrong way so for a few days, I’m putting on a low cost hedge.

I bought 17 contracts of SPY190118P00150000 for 5.45 a share.  A ten percent drop in the S&P on surprise news might result in those puts being worth more than 8.50 a share.  My profit could be over 5,000 dollars.  Realistically, I expect that the S&P will be largely flat on Monday and to exit the position for a loss of a few cents per share.  A loss of a dime per share would be about 170 dollars plus round trip commissions.  I think that is a fair price to pay for protection against what could be a global commerce shaking event.

In other news, the price of oil has been rallying strongly on news of the OPEC production cut.  RIGP and SDLP have joined the rally for me and are now both in range to write covered calls again.

I sold RIGP170120C00017500 for 70 cents a share today.  The trade will be in force for 51 days and yields 28.63% annualized.  I remain eligible to collect on a fat 11% yield on the underlying.  In the same vein, I sold SDLP170120C00005000 for a nickle a share.  The trade will be in force for 51 days and yields 7.16% on an annual basis.  Like with RIGP, I can still expect to collect dividends worth over 12% at market.

Devour your prey raptors!

{ 1 comment… add one }
  • Amber tree December 4, 2016, 3:14 pm

    Thx for sharing the way you protect against weekend with a high stake election.
    Indeed, when that only costs 170 (+ round trip fees), than that is a fair price.

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