New all-time highs in the S & P 500 have been welcomed by investors in the wake of the Federal Reserve going big on their first rate cut. Yet, the sustainability of this near year-long rally is being questioned. The SPDR S & P 500 (SPY) is up nearly 20% year to date, I want to spend some of my remarkable 2024 profits on downside protection in the event a breather to the rally or a downturn is imminent.
.SPX YTD mountain S & P 500, year-to-date Measuring risk is always a challenge, specifically when various headwinds exist at the same time. Current geopolitical risk ( articulated by Jamie Dimon ), possible Fed policy misstep or slowing growth in the U.
S. economy all serve as potential pain points for the fourth quarter. Although the Cboe Volatility Index does not show any signs of anxiety at 15.
80, we all know that risk happens fast. The trade I want to own downside protection via put options in the SPY. I am not a bear by any means and continue to think that 2024 will be a double-digit year, but the S & P 500 is approaching overbought territory when viewing through the Relative Strength Index lens.
Additionally, this is the richest valuation we have seen in quite some time with the S & P 500 trading at 24 times. The Trade (Selling a Risk Reversal): Sold the SPY (10.18.
24) $581 call for $3.00 Bought the SPY (10.18.
2024) $560 put for $3.70 This spread costs $0.70 or $70 per one lot This trade was executed when SPY was roughly trading $570 I chose a risk reversal to help finance.