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Trade of the Day: Laboratory Corp. of America Holdings (LH)

Put options act as insurance to the downside

   

At the end of last week the market saw some unexpected new highs after the Fed minutes were released, with near-3% gains for the week in the S&P 500,  1% gains in the Dow and 2.7% gains in the Nasdaq Composite. As I mentioned in my Trade of the Day commentary on Friday, I expect short-term bullishness ahead — but that doesn’t mean option traders should ignore puts entirely. In fact, having a balanced options portfolio of calls and puts can go a long way to steadying the boat in choppy markets.

However, since the indexes are currently in such wildly bullish territory, my systems don’t indicate that the correction will come in the next few days. So I uncovered an options put trade with plenty of time value left that can act as a shock absorber for your portfolio.

Recommendation: Buy Laboratory Corp. of America Holdings (LH) November $87.5 put options at $1.50 or lower. After entry, take profits if the stock price hits $91.70 or the option price reaches $2.80. Exit if the stock price closes above $99.20 or the option price falls to $1.00.

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