Zacks highlights commentary from People and Picks Member «DiviMO».
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The Rationale for Buying Index Puts
Recently (as noted in our prior blogs/comments) I shorted the market by buying index puts, specifically SPY (SPY) puts.
The purpose was not to try to make a gain by trading the puts. Instead the specific purpose was to protect my equity holdings and using these puts as protection or insurance if you may. I currently have a nice gain in the SPY puts. However, my purpose is protection. I plan to hold them until the market shows I no longer need them or they get close to expiration. I would be quite happy if they expired worthless. That would mean that the market turned stronger and my holdings are back to where they were when I purchased the puts.
I look at the index puts as insurance just like buying home owners or auto insurance. It’s there if I need them. If I have no home claims or auto claims in a year’s time, the premium I paid for the insurance is spent. I then go buy more insurance.
I could sell the puts today for a nice profit but what if the market continues to fall. I would be unprotected. To me, this is part of doing business and I do treat my tax-deferred account as a business. There are costs to doing business, one is buying insurance.
The most recent picks by «DiviMO» are:
A buy rating on priceline.com (PCLN), and
a buy rating on AutoZone (AZO), and
a buy rating on Clorox (CLX).
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