A lot of you are probably wondering what is going on with this market. 2014 started off pretty poorly with the S&P down ~3% and volatility skyrocketing as measured by a 20% increase in VIX. Investors are getting more and more worried about the current state of the economy. With the recent PMI data out of China coming in weak and January jobs added numbers coming in way below expectations, there is a looming uncertainty in our economic recovery.
While the losses are not very dramatic, a majority of the January’s trading days for both the S&P 500 and DJIA have been red. While they may seem insignificant by themselves, 0.5 – 1.0% losses day after day after day start to add up. Couple that with bad economic data and you have a market that has a propensity for the downside. If global economic growth continues to slow down in the coming months, expect companies to miss their earnings expectations and the market could take an even bigger down turn.
One trading idea to counter this eminent market correction could be to hedge your entire portfolio with a protective put on the SPY expiring in a few months. Given today’s gains, SPY puts should be a relatively cheap way to protect your portfolio.