Omicron Portfolio Hedge For This Week

Many people wonder about hedging a portfolio and the news about the Omicron variant on Friday saw that interest escalate.

When you’re long stocks or if you’re a premium seller, hedging is important. Understanding when to hedge and what hedge to apply is extremely important. Many began to realize that on the Omicron news last week, but what do you do when the VIX has popped?

Let’s take a look at two hedging opportunities that our co-founder Don Kaufman discussed this morning.

Omicron Hedge #1

The leadership to a large move lower on Omicron news will come from a handful of companies that carry a significant representation in the Nasdaq 100. You can probably guess some of the names that would be influencers: Apple Inc (Nasdaq: AAPL), Microsoft Corporation (Nasdaq: MSFT), and others. Therefore, using the Invesco QQQ Trust Series 1 ETF (Nasdaq: QQQ) makes a lot of sense.

Here are the details of the hedge Don reviewed this morning:

  • QQQ 23 DEC 21 383/373 long put vertical @ $1.82

The idea of this hedge is to reduce a portion of the downside exposure for a relatively limited amount of money. The rising implied volatility of the put strikes as you move out of the money makes this spread cheaper. For $182 per contract, you could offset up to about $700 of risk if QQQ were to fall below $373.

Omicron Hedge #2

For this hedge, the idea is to provide nearly a 1:1 hedge for a portion of your exposure. If Omicron policy sends the market spiraling, you could buy a deep ITM SPDR S&P 500 ETF (NYSEARCA: SPY) put for protection. In this case, you wouldn’t put on 1 contract for every 100 beta-weighted shares represented in your portfolio. You would look to have about one-third covered with a put.

Here are the details of the hedge Don reviewed this morning:

  • SPY 10 DEC $473 SPY long put @ $11.56


With the rally in the market, the strikes may need to be adjusted a little, but it gives you an idea of what to do. However, the importance of this post is to increase the awareness of traders about hedging and how to do it. At TheoTrade, we spend a lot of time on the subject and provide guidance on hedging when the VIX is low and when it’s higher.

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.


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