Hedging is an important part of my trading strategy, but not in the way you might think. I’m not trying to make a lot of money on the downside, and I’m not looking to reduce my portfolio’s Delta to zero. Instead, my goal is to slow my account down when uncertainty creeps into the market.
If you think about Delta like a car’s speedometer, the higher your Delta, the faster your account moves—both up and down.
When key moving averages break, I use hedging to tap the brakes. That way, if the market pulls back, I don’t give up all my gains, and if it rebounds, I still make money—just not as much as I would without hedges.
My post in our discord from Monday Feb 24th.
Wednesday I adjusted my hedges and locked in some profits.
If you want to see how my charts are set up, download my guide on Gumroad
If you haven’t read my blog on moving averages, go check that out too.
How I Hedge: Put Debit Spreads on SPY and QQQ
I hedge my trading account, not my long-term portfolio. My go-to strategy is at-the-money put debit spreads on SPY and QQQ when the market closes below a key moving average.
Here’s how it works:
I buy an at-the-money put with 30-45 days to expiration.
I sell a put $5 or $10 lower than my long put to reduce the cost of the hedge.
This creates a put debit spread, which profits when the market declines and reduces my portfolio’s Delta.
For example, let’s say this SPY put debit spread reduces my Delta by 10. That means my account is now moving slower—whether the market goes up or down. If I want to slow it down more I'd buy more than 1 spread!
When Do I Take Profits on My Hedges?
I don’t hedge just to hold onto a hedge forever. I use weekly support and resistance levels and moving averages to determine when to exit.
On Friday morning, I posted in Discord that I was taking off one-third of my hedges. Why?Because I wanted to lock in some profits. I can always add them back!
Could the market gap down on Monday? Maybe. Could it bounce back? Also possible. I don’t try to predict the future— If I can lock in wins to the downside that's a win.
The Super Collar: Hedging Individual Positions
Hedging isn’t just for the whole account—you can hedge individual stocks, too. If you own 100 shares of an underlying stock, you can:
Put on a put debit spread to protect against a drop.
Sell a covered call to collect credit, which can offset the cost of the put debit spread.
This is what I call the Super Collar. It’s a way to reduce your Delta on a stock position while getting paid to hedge. The trade-off? You risk getting called away at your covered call strike. But if the stock tanks, you’ve got some downside protection.
I've been using this strategy on Google, updating my trades in Discord in real-time. When Google pulled back, my Super Collar made money, softening the hit to my shares. Without a hedge, my losses would have been at full speed.
Why I Love Losing on Hedges
The perfect outcome? Losing on my hedges.
That means the market rebounded, and my portfolio is making money again. But in weeks like this, hedging gives me a way to reduce my risk and even make a little money when the market dips. Most investors just take the full hit—this strategy keeps me ahead of 99% of them.
Happy trading Good Kids! -$Maxwell
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