Hedging Trades For Fall

September and October have historically been months when the stock market sees disruptions. There is no absolute answer on whether or not a stock correction will occur though, only the tendency to happen more often this time of year. 

This year, there are four catalysts, which I identified in this article and the Friday webinar below, that could conspire to cause a correction due to a weakening market structure: 


Here are a few trades I will try to make if conditions and pricing allows. These might not get executed. We don’t tell the market, the market tells us.

Buy Puts On The S&P 500

In June Options I listed these trades to make if they priced: 

Stock/ETFExpirationStrike PriceLimit Buy Price (ish)
iShares Russell 2000 ETF (IWM)*November1655
SPDR S&P 500 (SPY)*September2802
Healthcare Select Sector SPDR (XLV)December852
iShares MSCI Italy Capped ETF (EWI)**September341

The Italy trade is in play right now as some of us were able to buy it at about a buck. Right now that option is trading for over $4.50 for a heady 450% gain. I have scaled out of that option and recommend that you do the same. If there is a rally in European equities we can find a longer dated put to own. 

The healthcare hedge (XLV) is just about in play now. It is trading at $2.35 right now. That’s close to the $2 I was seeking. So, the rally in healthcare stocks and less time value is bringing this trade to us. Let’s take a look at a chart: 

XLVAnd here’s a look at the short-term:

XLVXLV December $85 puts at about $2 if you agree with my imminent bear market in healthcare stocks and that autumn could be tumultuous on politics and markets.

The S&P 500 is now in a spot where we can become sellers. First off, we are raising cash selling some stock holdings. The next thing we can do, though it is speculative, any bet on things going down, which is NOT the norm, is speculative, is buy puts on the S&P 500. 

The puts I mentioned are the September $280s. Those are too close of an expiration for me. You could use those if you are willing to roll them out if the correction happens after. I prefer to just bump those out to the December 31s $285 puts. 


Jeff Saut over at Raymond James pointed out we’re in a buying period in the stock market. That period is entering the period where it could turn over. This rally is the type of “sell the rip” occurance I talked about months ago. If it runs just a little more, that would present a pretty good shorting opportunity.

If I can get the SPY December 31st $285 for under $10 then I’m interested.

I like that duration because it covers all of autumn. You could probably even buy the monthly which is December 21st expiration. I’ll keep an eye on it. I’m not sure how I feel about the last couple weeks of the year. I think this year sees some tax loss selling late if the correction is late, and of course, on top of losses from earlier in the year for some people. Hard to know. 

The stock market has quite a bit of downside if it rolls over. Remember this chart from February:

SPYIf you can get the $285 SPY puts for $10 or less, then at $275 you are even. If the market falls to the $220s as I think could happen, then you are looking at a big gain. Even on a 15% correction to $265ish on SPY you get a double. 

I am also concerned about small caps. These companies are very dependent on the economy continuing to roll. And, there was a gap up on President Trump’s election. I want these companies to succeed because they are the drivers of growth and employment, however, I’m not convinced the economy is going to grow as fast past Q4. 

Here’s the chart: 

IWMSo, I think IWM could easily see about $145 later this year, and if things get bad, head all the way back to around $120. That’s a big drop or a really big drop. 

The November $165s are trading about $4 right now, so those are buyable. I think I prefer the December 31st $165s for about $5. 

Given that small caps get less love when things get rough, I think this is a slightly better trade than the SPY trade.

Finally, I am also looking at volatility and currencies. I need a bit more time to think these through, read and play with charts. More on other potential trades for later in summer in coming weeks. For now, it’s the weekend, read the paper, do something outside and kiss somebody you love. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own a Registered Investment Advisor – <span title=’bluemoundassetmanagement’>bluemoundassetmanage…</span>.com – however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.