Puts for a Market Bubble: Vanguard Total Stock Market (VTI)
Another approach is to hedge the whole darn market, or close to it, using the Wilshire 5000 Index. There are a few exchange-traded funds to choose from, but the Vanguard Total Stock Market ETF (NYSEARCA:VTI) is one possible choice. It closed Wednesday at $121.39.
Perhaps one straight play is to buy the VTI 16 June $121 puts for $1.55. That’s about 1.3% in cost. You can get very cheap insurance if you instead go with the 16 June $109 puts, which sell for only 35 cents. That gives you a hedge beyond a 10% decline.
Another possibility is to go further out in both time and strike price. If you want a solid four-month period of protection, you could buy the 15 Sept $109 puts for 85 cents. This middle-of-the-road strategy costs only 0.7% of the index’s current value, and protects against greater than 10% loss for several months to come.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.