Category Archives: SPY Index Hedging

SPY Puts

Last night, the FOMC was to make their meeting announcements. There was some hawkish rumours that the Fed would raise rates earlier than expected or cut the bond purchases faster than the market expected USD10billion/month. This made me err on the side of caution. However, my portfolio hedging since early 2012 has generally not turned out well since the market has been on such a strong uptrend.

Thus, I bought 5 SPY Put Jul’18 14 191 @ $1.50 and 5 SPY Put Jul’18 14 192 @ $1.20, for a total outlay of $1350.

The FOMC meeting announcement was late at night my time, say 2 am. Surprisingly,  I was woken up by an extremely loud and heavy thunderstorm. I then saw a Bloomberg alert on my iPad that mentioned that the Fed was continuing with its $10billion taper. It took me a few moments for me to realize what had happened, and I then fired up my laptop to close the position. As a result, I sold 5 SPY Put Jul’18 14 191 @ $1.13 and 5 SPY Put Jul’18 14 192 @ $1.34. This was probably the first time that I used market orders on IB. Thus, I lost a total of $115 on this trade, exclusing commissions, which is much less than what would have happened if I hadn’t been woken up!

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SPY Index Puts

With the S&P500 at ~1880, which is near its high, I decided to add to my index puts. I bought 9 SPY May16’14 puts with 184 strike at $1.10. This helps me average down the 8 puts that I had bought previously at $1.40. I wonder if “Sell in May and Go Away” will be effective this year.

SPY Index Puts Follow-up

After 2 days of gains, the S&P500 closed up almost 30 points from the recent low. It appeared that my decision to lighten up on my portfolio hedges on April 8 was a good one and I should have even been more aggressive. However, last night, the S&P500 erased the 2 days of gains and closed down 39.1 points or 2.09% to 1833.. This takes the S&P500 even lower than the close of April 7 which was 1845.

Before the market started plunging, I had placed a limit order on the 6 SPY Apr17 14 181 Puts that I had not liquidated. Seeing the the puts were decaying due to time and price action so quickly (from 90 cents to 16 cents in 2 days), and with the market not opening lower, I decided to close the position. I placed a limit order at 20 cents versus a then market price of 16 cents.

When I woke up the next morning, the puts were trading a back at 90 cents! I can’t believe my folly. However, I still stand by my decision. With barely 7 trading days remaining, my puts were decaying rapidly and I was uncertain if the market would fall by a wide margin in such a short period of time. Thus, I still think I did the right thing by cutting the “loss”.

Thankfully, I still have my 10 contracts of SPY May16 14 179 puts.

SPY Index Puts

With the S&P500 having fallen 40 points over two days (2.1%), I decided to take some profit on my portfolio hedges. Here are the trades that were filled:

5 SPY Apr17 14 183 @ $1.45

10 SPY Apr17 14 184 @ $1.80

17 SPY Apr17 14 185 @ $2.30

My average cost prices were $1.3, $1, and $0.60. The reason why my cost prices for the lower strikes were higher than the higher strikes was because I had bought them when the market was lower.

I was also long another contract, 6, SPY Apr17 14 181 at average cost of $1,33. Shortly after the market opened, I had entered a sell limit order at about $0.90. However, after my other positions were closed, I raised the limit order to $0.97. Unfortunately, my order was never filled.

I also went long another contract, 10 SPY May16 14 179 @ $1.80.

Usually, I’d have said that 40 points was not a large enough move for me to liquidate the hedges. After all, the market could fall much further. However, I wasn’t too sure why the market was correcting in the first place. Jim Reid said it was something to do with the Ukraine issue. I had initiated my portfolio hedges because momentum stocks had been falling for a while, which could presage a general market downturn. But there wasn’t any fundamental news to make me think the market would correct. As such, I decided discretion was the better part of valor. Moreover, my puts were losing time value and also were going to expire 8 trading days later. The SPY was already at approximately 184 so my puts were either ITM or just OTM. Thus, it made it easier for me to close the position.

By initiating the long at the next expiration and a lower strike, I was in fact hedging my decision to close my long puts. But, the position was of a much smaller size and value, allowing me to average down later.

However, the market closed up ~6 points. As such, I shouldn’t have been so cautious to raise my sell limit order and to open the long put position. By doing so, I’ve lost some additional money. In particular, I regret not closing the long put position given the time decay.