Why I rolled into a put fly
SPX at 6,380 and I just banked profits on my put spreads.
A sharp squeeze higher is building, and I'd rather lock in gains than watch them evaporate in another face-ripper.
But I still want downside protection against my equity holdings.
Problem: vol is expensive. Skew is steep. A straight put spread covering a realistic move lower costs real money and decays fast if we chop or volatility drops.
So I rolled into a put fly. SPX Apr 30th, 5600/5850/6175.
Cost: $3,600. Gives good leverage if we keep falling over the next month.
Here's why flys work when vol gets rich.
You're selling expensive skew and near VEGA neutral. So you're safe if vol comes lower and the decay bill is light.
The other move is pulling in the back strike. The 5600 long put means if SPX crashes through all three strikes, I don't go to zero. Most traders set their back strike too wide and end up with a position that only pays in a Goldilocks zone.
The real question: are you paying too much to be hedged for when the market sells off?
When vol is high and skew is steep, how are you hedging? Sometimes just moving into cash is the better option.
Volatility first.
Imran
Disclaimer (Your Gains & Losses, Your Responsibility): This content from Options Insight LLC (“Options Insight”) is for educational purposes only and does not provide individual investment advice or recommendations, nor should it be considered an offer to buy or sell any security. All information is general and not tailored to your specific objectives, financial situation, or risk tolerance. Employees of Options Insight may hold positions in the assets discussed. While we use sources believed to be reliable, we are not responsible for errors, omissions, or losses resulting from reliance on this content. Always consult a licensed investment professional.
Liked this? Imran writes one every market day. Get them direct to your inbox.