Like all of us (excluding those outside the United States) the Options Action guys took the weekend to relax, watch football, and not talk about options. This makes for a light Round up today.
Steven Sears Striking Price column discusses portfolio hedging in the current market environment. He uses a classic line, which I plan on stealing in the future – “Hedging right now is like buying insurance when your house is on fire”. To negate the high cost of hedging Stephen Solaka of Belmont Capital in Los Angeles suggests a put spread collar. This strategy entails selling a call against a stock you own, buying a put for downside protection and then selling a lower strike put. The result is limited protection, but a very low cost for protection as two options are sold for income and on is purchased. For portfolios he suggests using options on the SPDR S&P 500 ETF Trust (SPY – 116.34) which well all know affectionately as Spyders. If you are considering his suggestion for a put spread collar to hedge your portfolio you may want to also take a look at S&P 500 Index (SPX) or the new SPXpm options instead of the SPY options. There can be some advantages to using these products instead of options on exchange traded funds for portfolio hedging.