We’re hedging our current downside risk with the following butterfly trade:
Day limit order
Buy to close 1 SPY Nov 125 put
Sell to open 2 SPY Nov 119 puts
Buy to open 1 SPY Nov 113 put
for a net debit of $1.21 or better.
Note that the 1 contract specified above for the wings (long legs) represents half the number of contracts allocated to each leg of our current, double-diagonal position.
Given the tendency for price gaps to be filled, not to mention our standard practice of trading on end-of-day signals, we’re using this trade to soften the blow of any further drop intraday. If SPY is below about $123.50 in the last hour of today’s session, we’ll add to this position as needed to achieve our desired risk profile.
Here’s what our portfolio risk profile looks like after this trade: