Most traders ignore hedging — right up until the moment they wish they had it.
It’s easy to get lulled into a sense of security when the market is grinding higher. Stocks go up, portfolios grow, and the idea of spending money on insurance seems unnecessary.
But the market has a way of reminding us why hedging exists.
We’ve just seen a 10% correction in the S&P 500, tariffs sending tech stocks into a tailspin, and growing uncertainty across multiple sectors. And while a lot of traders are scrambling to figure out what to do next…
I’m sitting on a hedge that — so far — has paid off to the tune of 350%+.
What I Call “Pocket Puts”
I’ve talked about these before — cheap, out-of-the-money puts that I buy as a form of portfolio insurance.
Most of the time? They expire worthless, and I move on. Just like car insurance — you pay the premium, and hope you never need it.
But when the market really starts rolling over, like it has now? That’s when these small hedges can help absorb the blow.
They limit risk, protect gains, and give me flexibility while other traders are panicking.
How I Pick My Pocket Puts
Not every put option makes sense for this kind of hedge. Here’s how I approach it:
- I use SPY puts — they’re my go-to hedge.
- I go out of the money to control my cost — Going out of the money keeps the cost low, allowing me to pick up puts that cost about $5 or less.
- I buy a handful, 4 or 5 contracts — that’s the sweet spot for my portfolio size. It keeps costs in check while still giving me solid downside protection.
- I buy about three months out — This gives the trade time to work if the market keeps sliding.
- I only buy them when things look stretched to the upside — Just like insurance, you want to get it before you need it, not after. But unlike insurance I don’t always have these in place.
So once i have them, what do i do with them?
For the most part, my pocket puts are like an insurance policy — I buy them hoping I’ll never actually need them.
But when the market does take a dive and those puts start paying off, I have a simple rule:
If they double, I usually sell half. That locks in enough profit to cover my initial cost, giving me a “free ride” on the rest.
At that point, I can hold onto the remaining contracts and see if the drop continues and make — or if the market finds support, I can close them out and walk away with a hedge that cost me nothing.
And right now, with everything that’s happening the latest batch I bought is up about 350%, so you know I’m glad I had them in place.
A Lesson Every Trader Should Learn
This market has been full of whipsaws, and we don’t know yet if this correction will get deeper.
But having a hedge in place ahead of time has given me something most traders don’t have right now: control over my next move.
That’s why I keep a few “pocket puts” in my back pocket when markets are getting stretched to the upside.
I just covered this and more in my latest FREE Market Radar session → Click here to watch it now!
Stay sharp,
—Geof Smith
P.S. Another hot tip for this market? Nate Tucci’s “Two Way” strategy… and with CPI and PPI out this week, his trades could get kicked into overdrive. Click here to get all the details!
