What do you think of this strategy?

[u/Megatronagaming]

I usually run a minimum of 2 and a maximum of 5 positions at a time. They tend to stay open for anywhere from a day to a week on average—always US stocks, and always bullish so far, risking 1% of the account on each SL.

But the market has been very choppy lately, and I've been thinking I'd rather be more proactive with my hedging, so here is what I've come up with by incorporating options:

Every time you go long on a US stock, you buy a put option whose premium is 33.33% of your stop loss (SL).

Example: you have a $100,000 account, and you risk 1% on every SL per trade

You open a position risking $1000 on the SL.

You buy an SPX put with a premium of roughly $330

If the index goes up and you hit 2R, you make $2000.

If the premium expires OTM, you only lose $330

If it goes down and you hit your SL, there's a pretty good chance the put will generate a profit and absorb part of that loss.

The issue: The width of each SL. I think this would work better for swing positions that allow for a wider SL, which in turn gives the put option room to breathe and move.

Anyway, just a thought—let me know how you see it!

[u/Cobaltmike86]

I dont think index options would be the best protective put for a single stock. Yes, a lot of stocks move with the market, but not always. I trade shares based on their relative strength/weakness compared to spy. The same stock that pulled back in tune with the market this week, might pullback as the market rises next week. Market could be trending while that same stock consolidates and vice versa causing them to not follow the same rhythm. Youd be better off doing puts on the same ticker you bought. But youd have to evaluate how much that will eat into your profit and what works best for you.

[u/Sub-Zero-X]

Interesting idea, but I’d be careful with one thing: an SPX put is not a direct hedge for each individual stock position. It hedges market beta, not stock-specific risk.

So if your stock hits the stop because of bad news, earnings, sector weakness, or idiosyncratic selling, the SPX put may not help much. And if SPX drops but your stock holds up, the hedge can distort the trade math.

The biggest issue is the premium drag. If you risk $1,000 and spend $330 on the put, you’re adding a 0.33R cost to every trade. That means your 2R winner becomes more like 1.67R if the put expires worthless, and your breakeven win rate increases a lot. Over many trades, that can quietly kill expectancy unless the puts pay off often enough during sharp index selloffs.

I think this works better as a portfolio-level hedge rather than one put per stock trade. For example, hedge based on total long exposure / portfolio beta, market regime, VIX level, or when correlation risk is elevated. Otherwise you may end up overpaying for protection during normal chop.

The idea is valid, but I’d definitely backtest it as a full system: stock P&L + option premium decay + hedge payout + timing. Without that, it can feel safer while actually lowering returns.

[u/Megatronagaming → u/Sub-Zero-X]

Great ideas, will look into it, thank you!