[Options] Portfolio Insurance

Sean McLaughlin
August 12, 2024

When the storm is upon us, it's too late to purchase hurricane insurance. Nobody will sell it to you. Of if they will, the prices will be obscene.

Last Monday, when the VIX printed a 65 -- it was too late to buy downside protection. If you did, you were asking for your face to be ripped off. And it likely was.

Now that the dust has settled a bit, volatility has abated significantly, and the relative winners and loses sorted themselves out, we're seeing some good setups to position ourselves for any additional downside action.

Additionally, it offers me a good chance to balance out some of the risks I still have on the books in my long positions.

On today's Flow Show, me at Steve Strazza talked about a good setup in Advanced Micro Devices $AMD that fits our needs.

Here's a chart of $AMD:

The thing that stands out the most to me is that $AMD couldn't reclaim it's spring lows in the bounce back following the recent wipeout. That tells me that if we see any continued weakness in the broader markets, $AMD has a real chance to lead us to the downside.

I'm here for it.

Here's the Play:

I like buying an $AMD December 130/110 Bear Put Spread for an approximately $6.75 debit. This means I'll be long the 130 puts and short an equal amount of the 110 puts:

The premium I pay today is the most I can lose if I'm wrong.

That said, if $AMD reclaims the 145 level and we see a closing price above $145, then I'm early or wrong and I'll close the trade to protect what's left of my premium in the trade. Additionally, if the value of the spread loses 50%, I'll also exit at that point to keep what's left.

Meanwhile, if $AMD trades down to our short strike (or below), then I'll take my profits. So any trading to or through $110 is my signal to book the win.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

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