I’m Buying PUTS on the S&P 500

This isn’t financial or trading advice so don’t do something just because someone on the internet is doing it. Having written that disclaimer, I am buying put options on the S&P 500 for September although May is very tempting too.

One of the things I do to protect my investment portfolio is to occasionally buy puts on some of my holdings as insurance or sell puts if I want to buy more of an equity or sell calls if I want to squeeze more income out of my equity holidings.

But for now, I bought contracts on SPY in part because I’m seeing large uptick in volume but it’s also been a while since we’ve had a major correction to the market. The sweet spots always can be found by scrolling through the puts on Finance Yahoo.

If you look at the image, right past the 310 PUT strike you see upticks in traded contracts. If you look at the May PUTS there is huge volume and trading contracts for in that month. So why did I pick September?

Options contracts have a strong decay and the shorter duration contracts tend to cost more and “burn” fast and even if there is a major correction in May, my Sept puts should still make profits given the longer duration window but nothing is guaranteed.

There is also growing commentary in the personal finance communities that a correction may be building but there is no guarantee that they are correct.

In any event, it’s a small position whose primary purpose is to act as an insurance policy in case of a big crash.