We suggest continuing to hold high quality US equities and hedging that with a long SPY put position. This put will minimize losses from holding stocks but is also a way to gain long exposure to volatility. When the market sells off volatility rapidly increases, making volatility an ideal stock hedge. Out of the money puts give your portfolio the ability to profit from increases in volatility and make it easier to stomach the wild swings of the market.
This morning the CBOE released an earnings beat of $0.44 EPS versus $0.407 expected. This stock yields over 2% and trades at under 19 times earnings with no debt and steady cash flows. We recommend selling an out of the money put at a level you would be conformable owning the stock. This position allows investors to profit if the stock goes down a little, remains unchanged, or goes up. Should the stock move through the strike sold the investor will be “put” the stock, making for a good long term entry point. We would not be surprised to see the CBOE initiate a stock buyback program in the future, which would increase shareholder equity and be a catalyst for a bullish move.