Hey trader,
On September 23, I built a portfolio hedge for $100,000 in stocks, and it’s finally doing its job. One piece of it cost $1.56, and today it’s worth $3.11.
A portfolio hedge is basically protection. It’s a trade that gains value when your stocks fall, so a selloff hurts less.
When protection like that doubles, the urge to cash it in gets strong. Giving in to that urge can cost you.
If you take a portfolio hedge off too early, you give up that protection right as the selling starts. SPY is only just moving into that selling phase now.
I’m leaving mine on.
I’ll walk you through how I’m managing it right now. You’ll see the level where I’d lock in a gain and how I’d roll it lower for a credit. I’ll also show you why I still want the market to go up.
It starts with the gap this hedge was built to cover.
How My Portfolio Hedge Is Built
I call this portfolio hedge my Atomic Hedge. On $100,000 in stocks, it works out to 130 shares of SPY at 768.
I bought two puts and sold four call spreads to help pay for them. A put gains value when the market falls, and the call spreads bring in income.
Selling calls doesn’t protect you on its own. That money is income that pays for the portfolio hedge, while buying puts or put verticals is the actual protection.
Last week, I added a piece that works like gap insurance on a car. It’s a put vertical, which basically means buying one put and selling a lower one to cut the cost.
It cost $1.56, or about $300 for two contracts. It bridges the space between 772 and 762, just above my 755 puts.
Everything here expires October 23. That leaves a little over a week.
Why I’m Not Pulling My Portfolio Hedge Yet
SPY traded around 770.73 when I checked the hedge today. The gap insurance has basically doubled to $3.11, and the call spreads I sold for $2.51 are going for $1.79.
I could use that gain to buy back half my call spreads. Then I’d lose my bridge, since my 755 puts sit well below where SPY is trading.
SPY is only just starting this selling phase. I don’t see a reason to take my portfolio hedge off now.
A portfolio hedge means giving up some upside to remove the downside. I’m willing to make that trade for a few more dollars and a couple more days.
I’m not trying to remove every bit of risk all the time, either. That gets expensive.
When I’d Close It or Roll It
The gap insurance will erode significantly from here, so I won’t hold that part of my portfolio hedge forever. If SPY approaches 762, I’ll get my opportunity to act.
SPY doesn’t need to reach 762 exactly. At 766, the spread could be worth about $6, which comes to $1,200 on two contracts.
My rule is simple. If I can capture about 60% of the $10 between 772 and 762, I take it.
Here’s how that could play out at 766:
- Close it: I’d sell the gap insurance and buy back the call spread for maybe $200. My 755 puts would still protect me below that.
- Roll it: I’d move the spread down to 762/752 for a credit. That overlaps my 755 puts, gives me a little buffer and puts cash in my pocket.
Once the spread gets about $6 in the money, I take action. I can roll it, close it or close half.
If you never added gap insurance, you can still build the bridge today. I’d look at the 766/756 put vertical for about $1.89, using two contracts.
Why I Still Want SPY to Rally
I don’t want the market to fall just because I have a portfolio hedge on. My position still carries positive delta, which basically means it makes money as SPY goes up.
The portfolio hedge reduces or removes my risk within a set band. Even if SPY drops to about 755, my risk bottoms out around $1,850, and that’s a decent correction from 768.
I’m not rooting for a crash. I’d love to buy back the call spreads first and then watch the market climb from here.
Before you pull a portfolio hedge that’s working, check whether the selling has actually played out. Set the level where you’ll close or roll it, and let it do its job until price gets there.
I walked members through this hedge live today. The 90-Day Block Hunter Challenge is where I hand you the same tools, 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%.
SPY is only just entering this selling phase, and I’ll be managing this hedge with members every step of the way. 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
