Protecting Portfolio for Downside Moves

    Sometimes in a long bull market trend as we’ve been experiencing it is easy to overlook protecting options trades and stock portfolios against downside moves. It is easy to get complacent whenever you see the market shake off any negative news and maybe only with a pause it goes back up, but eventually the market will have a correction it always has.  Of course one of the best ways to protect yourself is to have some protective measures on head of time and not beginning to scramble to protect yourself once the move is in play. In my mind one of the best ways to do this is to consider purchasing long verticals or long calls in the VIX options two to three months out in time. Considering VIX options currently in September or October or even November I think can be attractive. What I like to do is maybe wait for a day whenever the VIX pulls back a bit and then look at buying options at maybe 2 to 3 points out of the money and maybe a few more points out of the money for instance the VIX is at 11, you may want to consider buying 13 call options and also calls at maybe 17 or 18. I think that those are all attractive levels to look at to protect yourself. You will see the Vicks moves very quickly whenever the market makes down moves and often you have many chances to be profitable in these options on the market pullback, particularly a quick one. And you can do this by either purchasing long calls or long call verticals, your choice. Of course long call verticals can lower the cost of the trade but with slightly more brokerage fees.

          When you have individual strategy option plays on such as butterflies or calendars you can also consider buying an out of the money put below a position to protect yourself some if the market makes a quick pullback. Once the down move is underway look for an opportunity for a slight pause or like I said a pullback in the VIX to make your entry, you can still protect yourself even on some slight spikes. And this is just a few of the ways you can give yourself some peace of mind against the coming downtrend or a quick bearish market move. We at Sheridan Options Mentoring are prepared to help with this and further developing your options trading business.

-Mark Fenton
Senior Mentor

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