Friday, August 17, 2018
Why do I buy cheap OTM puts?
SLV credit puts spreads is the core of my Income Portfolio. A typical spread is -1 16 Put hedged with +1 13 Put. Almost always I have a feeling that cheap OTM puts are a useless waste of money. I have to suppress this emotion because back in 2008 SLV printed $8.5. If a financial crisis like in 2008 will happen again and the SLV price will drop say to $10 the baseline for me will shift $3 down but the income strategy will keep yielding interest. It turns out that Mark Spitznagel has a similar approach to risk hedging.
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