Buy 6 SPY 161 March Put @0.80
Wait a minute? Isn't this a site about option premium selling? What the hell is this long Put so far out? This LT guy just wants to throw money in the air. He's burning his dead presidents just like that.
Well, with a $100,000 portfolio it is a totally different ball game folks. A 10% draw-down on a 10K account doesn't hurt as much as a 10% draw-down on a $100,000 account. Remember, in the end, we go to the grocery store with dollars, not percentage points. So, absolute dollar numbers do matter. A lot.
Today's play is not a speculative isolated position betting on an unlikely market crash. It is the foundation for a series of plays to come that will be protected from a severe market correction. It will provide us with the so much needed peace of mind that becomes necessary when managing much larger amounts of money. These long Puts have a lot of potential without the market getting even close to SPY 161. A simple 2 or 3% fall, with the accompanying volatility expansion would be enough. More importantly, this initial defensive play will allow us to aggressively sell SPX Put spreads in the historically strongest period of the year (Nov - Jan).
I see,....a defensive play while there is still nothing on to defend
That's right. It's like starting a chess match with a Knight move rather than a traditional Pawn move. But it makes a hell of a lot of sense.
Tomorrow is November expiration and in all likelihood I will be deploying the first Iron Condor of 2016.
Market close for future reference:
(Click on image to enlarge)
This position was closed on December 11, 2015 for a +27.5% return on investment
Closed $SPY March 161 Long Puts. Bought for 0.80 debit on Nov. 19, now sold them for 1.02. A 0.22 gain or +27.5% Return on Investment— The Lazy Trader (@lazytrading) December 11, 2015
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