2020 Hindsight Brings Out The Foresight To Hedge Into 2021

As we approach the turn from 2020 to 2021, option traders are looking to major market index ETFs to hedge. Many look at the new year as an opportunity to set goals for redefining themselves physically, spiritually, financially, etc. A rebirth! However, how many aspects of our current circumstance will be suddenly absolved in 2021?

Past is Prologue

Shakespeare penned the phrase, “what’s past is prologue.” This phrase tells us that our past will shape the present and the future. That sounds like a rebirth. However, that assumption rests on the idea that we learned our lessons and will change course. As history suggests, this isn't likely to happen.

Our reality is one where the political and investor classes hold the cards. The result is, therefore, more of the same inanity. With very little control over our destiny, free markets' intrepid nature is replaced with the trepidation and plotting nature of a mixed economy.

Wow! That’s getting a little heavy, what’s this have to do with hedging? Basically, there should be some concern that the masters of the universe stumble in early 2020. Why not hedge it?

Hedging Option Activity

A portfolio hedge is a trade that reduces the overall directional risk of your current holdings. At TheoTrade, we teach you a number of strategies that can be used to hedge the downside risk of the market. We also help you identify key signals when institutions are hedging their risk and how to use tools to determine your directional risk.

There are many products and strategies that can be used. Some of the most direct are trading options on index ETFs. There were significant hedges made on the SPDR® S&P 500® ETF Trust (NYSEARCA: SPY) and the Invesco QQQ Trust (Nasdaq: QQQ) today.

SPY Option Activity

At the time of this writing, the options for the SPY were trading over 20% above its 5-day average volume. The put-to-call ratio was 1.35 as more puts were being traded than calls. Here are some large bearish trades that stood out.

1 2
View single page >> |

Disclaimer: Neither TheoTrade or any of its officers, directors, employees, other personnel, representatives, agents or independent contractors is, in such capacities, a licensed financial adviser, ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.