Disclaimer
This is for informational purposes only.
Discussion
I’d like to get a little more creative with the put position heading into this climactic peak. The basic premise is that at bare minimum SPY trades down to $400 sometime in the September/October time frame, more likely the $380 support zone from the SVB crisis, and my personal base case of a retest of the October 2022 low of circa $350.
If SPY tops out around $465, a -10% correction brings it down to $419. That’s an at-minimum scenario correction.
Scenario 1. The 9/30 $440 puts are $4.88, which means $4.88 turns into $19 worst case, 3.89x. If paired 50/50 with the 10/20 $420s at $3.40, those probably trade up to $4.50 a month out, so call it break even.
Scenario 2. At $400, the $440s are worth $40, for an 8.2x return, while the $420s are worth $20, for a 5.6x return.
Scenario 3. At $380 the $420s are worth $40, for a 11.76x return, and at $350 $70 for a 21x return.
It could be that we get a 5-10% correction in August, lots of signals saying that’s it, rip it back to ATHs, and then the plunge into the October time frame. A quick 5-10% in the first half of August probably yields the return of scenario 1, so at least a 2x total portfolio return. From there, calls could be purchased for that final move up to ATHs likely into Jackson Hole.
However, there really is a scenario here where SPX rips to ATHs into next week’s FOMC, in which case the pullback would likely be swift and unending into that September/October period.