Why I hedge

First off, your probably thinking why am I talking about a bush in an Options Trading group. Well I'm not. A hedge in the financial world is basically protection in case the market goes the wrong way that my position is in. For example, let's say I'm long 300 shares of SPY which as of close on Friday May 15th is worth $85,884.00. Now with the run the market has been on, you don't want to add anymore shares and you feel like the market could go down a bit or a lot depending on how you're looking at the market overall right now. 

So you think the market's going to go down. You can buy puts on SPY, but those tend to be pretty expensive and you have limited cash available. Well you can buy a butterfly put spread with strikes of 260/255/250 on SPY with a June 19th expiration date for 0.14. That's a max profit of $486 per butterfly. Remember a typical butterfly is you buy one of the first strike, sell two  of the middle strike and buy one of the way out of the money strike. The goal of this to negate the effects of the market going the opposite way that your position is. It's a way to control exposure and manage risk. You can hedge with UVXY call butterflies as well but the liquidity is much better on SPY. The reason I hedge my long positions is because if even one of these hedges hit's max profit, it saves my portfolio, it helps negate the bleeding when the market tumbles. If just one hit's during the year, and that's the only one that saves me, it makes it worth it in my case.  It's up to you to figure out how much you want to spend and potentially lose on hedges. 

Disclosures: I am currently long a June 19,2020 50/55/60 UVXY call butterfly. This is not intended to be investment advice. For entertainment purposes only, please do your own due diligence before investing. I have no position in the above stock(SPY).