Smart Protection: Trade Ideas

It's tempting to be complacent - despite tariffs and the uncertainty, equity indices are in new high ground - as goldilocks go, this doesn't get any better - but the old adage is "buy insurance when you can, not when you need it".

Vols are definitely depressed, making insurance cheap- but is there a smarter (and cheaper) way to buy insurance? In a world of put-call parity, there is no free lunch – but a lower upfront cost is certainly achievable (approx.. 34% lower for SPY and 39% for QQQ for a 97% protection). As with any insurance, there are trade-offs – this strategy is focused on lower upfront costs and more mindful of downside risk protection.

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• Priced for both QQQ and SPY. While the examples below are priced for approx. 1 year expiry, trades can be structured for bespoke maturities. Execution efficiency/ liquidity will all play a role.

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• Structure is based on listed options offering full flexibility (no lock in) and unlike some structured products, not conditional on other variables.

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• While this mimics the pay-off of a long put structure, our focus is on protecting downside at a lower upfront cost, with a view that upside is limited .  

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Trade Set Up

source: Lighthouse Canton

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Arguments For & Against

source: Lighthouse Canton

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SPY - SUMMARY

source: Lighthouse Canton

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SPY - Payoff

source: Lighthouse Canton

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SPY - Premium & Payoff Comparison

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source: Lighthouse Canton

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QQQ - SUMMARY

source: Lighthouse Canton

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QQQ - Payoff

source: Lighthouse Canton

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QQQ - Premium & Payoff Comparison

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source: Lighthouse Canton

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