The market in late 2023/early 2024 has been a non-stop bull run with not a single significant dip at any point. While we’ve locked in some nice profits, we cannot expect this trajectory to carry on forever. At some point we will get a pullback. A new trade was added to our portfolio with this thought in mind. This trade aims to accomplish a few objectives:
- Add additional downside protection
- Flatten our delta curve so we’re more profitable in a down market
- Do so in a cost-efficient manner
The Space Trip Hedge is a trade that we believe can achieve these objectives. The following summary is our take on the downside hedge version of Ron Bertino’s “Space Trip Trade”. Our version is slightly different, using /ES futures instead of SPX. SPX would be more efficient in a portfolio margin account. The performance and objectives are very similar.
Before going into the trade set up, let’s go over a few pros and cons of this trade.
Pros:
-Can provide a large amount of downside protection for a low cost (initial debit).
-Negative Delta INCREASES over time.
-Easily scalable. Can also be laddered over time to provide more consistent protection.
-Low buying power requirement
Cons:
-This is a negative Vega trade and unrealized P/L will be negatively affected by a large increase in volatility.
-Relatively large number of contracts needed to set up – higher fees.
-Initial negative delta is low, takes some time for trade to develop.
We use this trade primarily to balance out some of the positive delta assumed by our 112 trades. Balancing our delta allows us to benefit from theta decay more efficiently when the market is not constantly making new highs.
NOTE: This is not financial advice. All content on this website is for entertainment purposes only. All followers are responsible for their own actions when investing. Talk to a licensed professional before making financial decisions.