August was an emotional roller coaster for investors. After a historic spike in volatility at the start of the month, some investors bravely took advantage of a temporary buying opportunity. With the S&P 500 now less than 1% from its all-time high recorded in July, we expect September to slow and the SPDR S&P 500 ETF (SPY) to remain range bound. Hedging at the S&P 500’s current highs can help mitigate downside risk while also looking to generate profits if September is historically weak again. (See previous CNBC Pro article on September weakness.) SPY YTD Mountain SPDR S&P 500 ETF, YTD Labor Day weekend signals that kids are back at school and summer is officially over, but it also sparks investor doubts as we head into fall. On average, September is the worst-performing month for the stock market’s three major indexes, according to Stock Trader’s Almanac. Yardeni Research also states that from 1928 to 2021, the S&P 500 Index has fallen an average of 1% during the month of September. This gloomy historical data is in the background for investors as many global macro headwinds remain front and center. Furthermore, with the key meeting less than 20 days away, the market will wait to gauge the Fed’s “sense of urgency.” The market expectation is that the Fed will launch a rate-cutting campaign. I believe the Fed will maintain a conservative course of action with only a 0.25 percentage point cut. This caution in itself could moderate some of the recent stock market enthusiasm. I would like to utilize risk reversals to take advantage of potential pullbacks, but I would also like to add another leg (buying upside calls) to this option spread to define the potential risk if the market decides to resume “melt-up mode.” To pay for this trade, I am aggressively selling SPY at its all-time high of $565. It’s not quite at-the-money, but it’s pretty close. Sold call options on SPY $565 on 09/20/2024 for $5.00 Buy put options on SPY $545 on 09/20/2024 for $2.35 Buy call options on SPY $575 on 09/20/2024 for $1.35 Earn $1.30 ($130) per lot SPY was trading at approximately $561 at the time the trade was executed Disclosure: (Owns this spread and is long SPY) All opinions expressed by CNBC Pro contributors are solely the opinions of the contributor and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliated companies, and may have been previously distributed by the contributor on television, radio, the Internet or other media. The above content is subject to our Terms of Use and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The content above may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for full disclaimer.
Follow US
Find US on Social Medias
Popular News
Global Coronavirus Cases
Confirmed
0
Death
0
