Speaking of portfolios, what a fantastic time to add hedges to the STP!  

I'm going to try to have hedges we can make money on along the way – in case the market fails to surrender. 

Hedge #1 is SVXY, which is the Ultra-Short VIX ETF.  This is going to be an actively managed trade:

• Buy 20 SVXY June $140 puts at $28.50 ($57,000) 
• Sell 20 SVXY June $110 puts at $17.50 ($35,000) 
• Sell 6 SVXY Feb $30 puts for $8 ($4,800) 

That's net $17,200 on the $60,000 spread that's almost $10,000 in the money to start.  As long as it doesn't drop too fast, we shouldn't have any trouble rolling the short puts and, if SVXY goes up and the puts go worthless, then we sell $5,000 worth of March puts, etc until we pay for the spread (3 more sales) and then it's free insurance.  

 

We can do something similar with the Dow for the STP in something we used to call a Mattress Play.  

• Buy 20 DIA June $280 puts for $21.50 ($43,000) 
• Sell 20 DIA June $260 puts for $8.20 ($16,400)
• Sell 10 DIA Feb $257 puts for $2.05 ($2,050) 

At net $24,550 we're buying $40,000 in protection but we anticipate selling March, April and May puts for $6,000 more and this is the kind of spread we roll along all year.  Upside at the moment is $15,550 so not too sexy but these are hedges we work into and, of course, with DIA at $260, the only way we DON'T get paid in full is if the Dow goes higher – which better mean we're making money on our LTP longs.

So here we have about $60,000 in downside protection for our LTP but we also like the STP to make money so, assuming we lose about $20,000 (half of what we're spending), let's find a couple of puts to sell.

• 5 IBM 2020 $140 puts can be sold for $12 ($6,000) 
• 10 IMAX June $23 puts can be sold for $3.40 ($3,400) 
• 3 TSLA March $260 calls can be sold for $15 ($4,500) 
• 10 ABX Jan $15 puts can be sold for $2 ($2,000) 
• 10 CIM June $18 puts can be sold for $1 ($1,000) 
• 20 NLY Jan 12 puts can be sold for $1.85 ($3,700)
• 10 SKT Jan $22.50 puts can be sold for $1.85 ($1,850)

That's $22,450 collected in premium that will mostly expire this year and, if the stock goes south, these are Watch List stocks we'd be happy to turn into long-term positions in the LTP and, don't forget, if they go down – it's probably because we're making $60,000 on our hedges!  

Don't forget, the primary purpose of the STP is to protect the LTP so we look, generally, for opportunities that will make money if the market heads lower.  If the market goes higher, the $500,000 LTP should easily cover any losses in the $100,000 STP.