Hey trader,
The SPY hedge I built today has a blind spot. I cover it with a VIX call spread that costs 69 cents.
That hedge assumes your stocks move like the S&P 500. Some of them won’t.
A few will fall harder than the index once real selling shows up.
I call the SPY hedge my Atomic Hedge. Essentially, I buy puts and sell call spreads to pay for them, the same way institutions are hedging right now.
The VIX basically measures how much movement options traders expect from the S&P 500 over the next 30 days. A call spread on it means buying one strike and selling a higher one, which keeps my cost low.
Picking those strikes came down to one check. I read what the market already expected the VIX to do, then started my spread right at that number.
What does a 69-cent trade catch that $1,132 in SPY puts can’t?
Let me show you where the SPY hedge runs out first.
Where My Atomic Hedge Runs Out
On $100,000 in stocks, SPY at 768 works out to 130 shares. That’s 130 delta, which basically means I make or lose $130 for every $1 SPY moves.
I buy two 30-delta puts for about $1,132. Each one moves roughly 30 cents per $1 in SPY, so the pair offsets about 60 of my 130 shares.
Paying that every month would eat 12% to 14% of the portfolio a year. I sell four call spreads at $2.85 apiece instead, which brings in $1,140 and covers nearly all of it.
Skew makes those spreads unusually rich right now. Institutions are buying puts and selling calls, and that tilt pays me more on the call side.
The hedge also assumes your stocks track the index. Their implied volatility, meaning the movement options price in for each stock, should sit near the 39% average for S&P 500 components.
If your stocks are averaging above 39% or 40%, they’re running hotter than this hedge assumes. I’d look at taking some profits and trimming a few of them.
What The VIX Covers That SPY Can’t
A 2% to 4% drop doesn’t worry me much. The Atomic Hedge handles that range on its own.
At 4% or 5%, I have a good chance to roll the puts for about $1,000. Rolling means selling the put I own and buying a lower strike, which books the gain and resets my coverage.
The VIX spread is there in case something bigger happens. It covers a slide to 735, about 5% lower, or even 700.
I like putting it on now. The VIX sits near 14.8, while the three-month VIX runs 21% above it.
A gap that wide means options traders are pricing far more movement ahead than today’s VIX shows. Anything north of 20% on that gap tells me volatility expectations are extreme.
If I wait for the VIX itself to rise, I’m waiting for the sell-off to happen.
I Start With What The Market Expects
Pricing the strikes got interesting fast.
I went about 20 days out, since the monthly expirations didn’t line up with my 30-day hedge. Before picking a strike, I checked what the market already expects.
The extrinsic value on these options points to a VIX around 17 to 18. Extrinsic value is the part of an option’s price that pays for time and possible movement.
That number shapes the whole trade. If the VIX only reaches 18, my profit stays limited.
A spread at 16 and 18 cost 73 cents. It sat right on top of what’s already priced in, which makes it a weak hedge.
The 17/22 fit better at 69 cents. Its lower strike sits at the market’s base expectation of 17, and I want my spread to start there.
Past 17, the spread starts adding value. A pop to 22 at expiration takes it from 69 cents to $5.
Reading what’s priced in first keeps me from buying a spread that only pays on the move everyone already expects.
How I Size It
I’m not trying to take off a lot of risk with this one. It just takes a little of the edge off.
Here’s how I have it set up:
- Setup: Buy the VIX 17/22 call vertical about 20 days out, as a catchall next to the Atomic Hedge.
- Cost: $0.69.
- Breakeven: A VIX near 17.69 at expiration.
- Max gain: Roughly $500 per contract, less the $69 I paid.
- Size: One contract for every $100,000. Two would be a little excessive.
- Edge: The spread starts at the market’s base expectation of 17, so it gains value as soon as volatility runs past what’s priced in.
I treat this as insurance for the portfolio. It can also stand alone as a trade.
The Atomic Hedge covers a normal pullback. The 69-cent VIX spread covers the stocks that fall harder than the index.
This whole read started with one question about what my hedge couldn’t see. I answered it by checking what the options market had already priced in, well before the VIX itself moved.
I do that work with members every session. The 90-Day Block Hunter Challenge is where I hand you the same tools I used today, including the full Atomic Hedge investing plan in the Block Hunter library.
Here’s what else you get when you join:
- The Block Hunter Console, scanning hundreds of names for hidden pressure.
- 2 to 3 block alerts a week, plus one high-upside setup every Friday.
- The live Masterclass and 12 weeks of mastermind sessions with me.
- Ghost Hour from 11:30 to 12:30 EST every weekday. That’s the window when the market moves fastest and the prints tend to show themselves.
Recent Block Hunter reads include SILJ +392%, PLUG +222%, NKE +142% and GDX +72.5%.
The three-month VIX is already flashing a warning. Your next 90 days start today, and your seat is protected by a full 30-day money-back window.
👉 Join the 90-Day Block Hunter Challenge
Brandon Chapman, CMT
Creator of Ghost Prints
