What's Happening?
KKM Financial CEO Jeff Kilburg has suggested that traders consider purchasing protective puts as the stock market continues its rally to record highs. Despite the ongoing failure of U.S. lawmakers to pass a funding measure to reopen the federal government, the S&P 500 increased by 0.6% and the Nasdaq Composite by 1.1% on Wednesday. Kilburg highlighted the low volatility in the market, which has made options premiums inexpensive, presenting an opportune moment for traders to hedge against potential downturns. He explained his strategy of selling December 31 $700 calls on the SPDR S&P 500 ETF (SPY) and buying the December 31 $640 put, indicating his belief that the market will not rise another 5% before the end of the year.
Why It's Important?
The advice from Kilburg comes at a time when the stock market is experiencing significant gains, yet there remains uncertainty due to the unresolved government funding issue. The use of options as a protective measure allows investors to safeguard their portfolios against unexpected market declines. This strategy is particularly relevant as the earnings season approaches, which could introduce volatility if companies adjust their financial outlooks. Investors who follow Kilburg's advice may benefit from reduced risk exposure, especially if market conditions change abruptly.
What's Next?
As the earnings season begins next week, investors will be closely monitoring company reports for any signs of financial adjustments that could impact market sentiment. Kilburg's strategy suggests that traders should be prepared for potential market corrections, especially if companies lower their earnings expectations. The ongoing government funding issue also remains a critical factor that could influence market dynamics in the coming weeks.
