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Mike Khouw's SPY Hedge

On CNBC’s “Options Action,” Mike Khouw suggested that investors should consider using options to hedge a long position that behaves like SPDR S&P 500 ETF Trust (NYSE: SPY).

See Also: Carter Worth And Mike Khouw’s Estée Lauder Trade

Khouw wants to buy the July $400 put for $7.65 and he would finance the purchase by selling the July $435 call for $3.65 and the July $375 put for $3. In case SPY trades lower, Khouw would have protection between $400 and $375. With the sale of the call, he is limiting his upside to $435 or 4.24% above SPY’s closing price on Friday.

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