The Federal Reserve made a small, expected rate cut, leading to a 1% rally for the S&P 500 Index. Looking to protect gains long-term, investors turn to the S&P 500 ETF, SPY, using option collars. A strategy called a “Married Put” combines profit from market gains and losses, offering downside protection.

To hedge SPY, investors purchase put options representing 100 shares. A put option is chosen 5% out of the money, providing the right to sell SPY if it falls by that amount. Low volatility in SPY makes purchasing protection inexpensive, like an unexpected gift for the portfolio. With a married put, downside risk is covered while upside potential remains uncapped.

As SPY remains trendless, investors look to married puts for protection. If the market experiences a shock, puts will help, while gains in SPY remain unlimited. The strategy offers time for resolution, providing a balance between risk and reward. Unlike collars, married puts offer comprehensive protection for investors seeking long-term security.

Read more at Barchart: Post Fed Cut, This Popular S&P 500 ETF Is Not a Buy or Sell, But a ‘Married Put.’ How to Create One.