Written on January 14, 2009 – 12:56 pm | by admin

As you may know, I puchased a long dated SPY put (Sep $80) a week or two ago for $6.20.  I decided to do this because the biggest thing I learned from all the turmoil in the last year is that never be unprepared for a market catastrophe.  To me this means holding some long dated market OTM puts.  I will be looking to keep this as part of my portfolio for the forseeable future.

Since I bought my put, the SPY had gone almost 50-60 points before today.  During today’s drop and explosion in volatility, I sold my put for $10.20 (67% after commissions).  As it stands right now, I have sold at the low of the day.  I don’t expect this to be the ultimate bottom but after making 67% in a few days, I have to take it off the table.  If I had bought more than 1 contract, I would have sold half and left some of the play on.  I do believe that the market is going to bounce (not to 9000) before it re-tries the lows and so I may look to re-enter at that time.  

Hedging isn’t for everyone and most of the time I will just lose money but for the next time that Oct/Nov 08 happens, I will be prepared.


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