The stock market kicked off August with a swift jump in volatility . I want to embrace this turbulence and use options to create income and potentially get long the broader market at lower levels. Confirmation of slower growth has been verified this week with an extremely weak factory activity number coupled with a troubling jobs number in July of just 114,000 new jobs. Risk happens fast, and investors have recently been conditioned that markets only go up with the impressive rally grinding higher since last November in the S & P 500. .SPX 1Y mountain S & P 500, 1-year The highly liquid ETF that tracks the S & P 500, the SPDR S & P 500 ETF Trust (SPY) , was up nearly 35% (mid-July) from last November. This move forced many bears on Wall Street to capitulate and many malleable analysts to quickly reconfigure their end of year S & P 500 targets substantially higher. When I saw several strategists flipping and the CBOE Volatility index pinned at low levels, I had confidence that July was the right time to start implementing protection in portfolios. The trade With the S & P now down 5% from mid-July recent highs, I look at this acute move lower as a buying opportunity. I want to use options to express my view and define my risk. Sold the 8/30/2024 $525 Put for $6.75 Bought the 8/30/2024 $500 Put for $2.50 Credit Spread: Collecting $4.25 per one spread ($425) This put spread was sold when SPY was roughly trading $535 Warren Buffett once said that it’s wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.” I would not label myself as a contrarian, but when sentiment shifts too far (either way), the old pit trader in me comes out. Therefore, since markets are in peril, I want to sell a put spread to create a short-term income stream while feeling comfortable in owning the broader market on this sharp drop. Furthermore, as everyone will start blaming the Fed, I believe the likelihood of a half-percentage point rate cut is more of a reality in September. That will not resolve our slowing growth issues completely, but it will possibly serve as a shock absorber. DISCLOSURES: (Long this spread, short SPY, short SPY $520 puts) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
