So in June with the SPY around $92, I made my first foray into this exercise buying "out of the money" puts (July expiration) as a sort of portfolio insurance - just with 2% of the portfolio. It ended up working wonderfully and in fact very quickly as I outlined here.
When it works like it did in that episode from late June to early July you have massive upside. At S&P 930 area where I slapped those puts on, no one thought S&P 850 was probable. Within a week, when we hit S&P 870, it was very probable and our puts exploded in value. Those puts contributed in a very sizeable way to our performance for the previous 4 weeks
Here is the graphical representation.
In mid July, while I still had a good amount of long exposure I wanted to do the same thing [Jul 20: Bookkeeping - Buying Some August 90 SPY Puts (SWGTL)] with a 3% exposure for some balance in the fund.
If we fill that gap down at 906 in the next month, these puts should again, explode in value - especially if it happens in the next few weeks. If not, they expire worthless in a month. Of course you can sell part of all of it in between now and the 3rd week of August as well.
Of course since July 20th we've been on a constant upward swing that until yesterday generated not 1 single day with even a >0.5% correction. In fact as I look at the 4 week performance it is the best since the turn off the March 6th lows. So obviously, barring a miracle in the next week - these puts will expire worthless. Like real insurance, we did not "need it" - paid the premium, and never collected any benefit. Whereas the month before we were paid out on our insurance in spades as the market fell quickly after we put the puts on.
So as we run out of time on the August puts I am going to replace them with another set that extend out into October - we are using October 95 SPY [SWGVQ] with the exact same logic. As I write, these are selling today @ $2.21, meaning if I held them all the way to October I'd need the S&P 500 to fall below 930 just to break even. But that is not the eventual plan - they will be sold on any material pullback. There still remains gaps in the S&P charts at 906 (equivalent to SPY 90.5), and NASDAQ at 1800 - but even a drop to SPY 94 would pay off very well on the puts. If the market goes up for 50 more days in a row, obviously we will lose.
Now unlike mid July when I had very little individual short exposure, I now also have a lot of individual names we are placed against. But those might be gone in a week, or 3 weeks. Whereas the puts will act as long term insurance against any swoon in the next 10 weeks. As we did with the August 90 Puts we'll include this as part of our "short" exposure in the weekly summaries.Just as a side note for newer readers we have been employing some of the same strategies on the long side - to great benefit - but almost always only on an intraday basis during what I call "trend days". Since the trades are so short term in nature I don't post them on the blog because if they start to work against you, I literally might get back out of the call positions before I finish typing the entry. Haven't done that strategy much the past 2 weeks but previous to that we caught some excellent intraday moves up with the bonus of getting our capital back into cash by the end of the day.
Long October 95 SPY Puts in fund and personal account
