Hey everyone, I would like to hedge my SPY for next year. I understand that we shouldn't be timing or predicting the market, but well here I'm trying to do it.
My fear is mostly driven by the AI bubble popping or AI doing so good that only a few players will benefit but not the overall economy and so the economy might be going down. In other words, I thought it was a good idea to cap my losses and fund this insurance by potentially capping some of my gains.
So here's my idea. I'm planning to buy put options at -20% drawdown from spot and fund some of that by selling covered calls at 20%. From my calculations this edge would cost me arount 0.5% of my portfolio.
I could in theory cut this further by selling puts at -50%, and it would bring it down to 0.3%.
I have not done this before and I am trying to understand if it makes sense especially given my concern on AI distrupting the market next year.
Feedback on my strategy to hedge AI risk in 2027 (collar)
byu/windyfally inoptions
Posted by windyfally
1 Comment
0.5% is cheap for sleeping through whatever nonsense the AI hype cycle throws at you next year. Most people just rawdog the index and then panic sell the bottom anyway.
The -50% put sale is where it gets sketchy. If we actually do see a proper bubble pop, that tail risk is exactly what you’re trying to dodge, not double down on. Saving 0.2% to open yourself up to a 50% drawdown feels like picking up pennies in front of a steamroller.
I’d keep the simple collar and call it a day.