Three Bearish Options Hedges: Calm Tape, Cheap Fear, and a Useful Moment to Be Boring

Let's put today's numbers into a trader's frame. SPY is around 695. VIX is near 16.55 on the Cboe spot reading. A quick approximation: if volatility is running around 16.5%, the one-standard-deviation 30-day move implied by that vol is roughly 4 to 5%. On SPY, that translates to something like 33 points over 30 days, give or take. That's not a prediction, just a sanity check for strike selection.

Here's the subtle extra: tail pricing hasn't disappeared. Cboe SKEW has been running in the mid-140s recently, which signals that out-of-the-money crash puts remain relatively expensive. Translation: simple long puts can be pricey for what you get, which is exactly why spreads matter.

Hedge #1: The Put Spread Seatbelt

A put spread is drawdown protection with guardrails. You're buying protection that pays if the index drops, but you're selling deeper protection to cut the cost. That tradeoff, bounded payout for bounded cost, is what makes it livable over time.

Structure

With SPY around 695, a clean seatbelt typically looks like this: buy a put roughly 3 to 5% below spot, sell a put roughly 8 to 12% below spot, same expiration with 60 to 90 DTE so you're not living in the gamma blender.

Example (illustrative strikes, not a live quote):

Buy the 670 put and sell the 630 put, same expiration. This gives you a $40-wide spread that activates if SPY drops meaningfully but caps your cost at the net debit.

What This Hedge Does Well

It handles a meaningful down move that threatens your process, especially the fast, slippery kind where you don't have time to adjust anything else.

How It Breaks

The market chops and time passes. You bleed slowly and start resenting the hedge. That's normal. Insurance feels dumb right up until it doesn't. The fix is deciding your hedge's job ahead of time: if it's crash insurance, you accept some bleed. If it's a tactical hedge, you define a time stop, something like "I'm not paying for this past X weeks unless conditions change."

You buy the wrong thing. With SKEW elevated, straight puts can be expensive relative to their probability of paying. Spreads are the adult version because they convert "pay anything for fear" into a defined package with a known cost.

You oversize. If your hedge debit is large enough to make you angry during calm weeks, you'll abandon it, usually right before you need it. Size the maximum cost, not the comfort. The debit is the truth.

Hedge #2: The Bear Call Spread Overlay

A bear call spread is a defined-risk way to get paid for saying: "From here, I want less upside exposure and a little downside cushion." You sell an out-of-the-money call and buy a higher call to cap your risk.

Structure

With SPY around 695, you can think in bands. If a 30-day normal range is roughly plus or minus 4 to 5%, then "above the noise" is something like 720 to 730 or higher.

Example (illustrative):

Sell the 725 call and buy the 745 call, 30 to 45 DTE. You collect a credit upfront and your max loss is capped at the $20 spread width minus the credit received.

When It Works

Sideways markets. Mild pullbacks. "Up but tiring" periods. Weeks where you'd rather get paid to be patient than add more long exposure.

How It Breaks

Melt-up risk. If the market grinds higher, this spread can lose while your long book wins. That's fine until the hedge is large enough to make you resent the rally. A hedge should never be big enough to turn good news into emotional damage.

Selling it too tight. A tight bear call spread is not a hedge. It's a short-term directional bet with stress attached. Give the market room. Your goal is portfolio stability, not a perfect P&L curve.

Rolling as a lifestyle. Rolling can be a tool, but habitual rolling is how defined-risk turns into repeated risk. If you're managing a hedge every two days, you didn't buy protection, you bought a second job.

Hedge #3: The VIX Call Spread Airbag

This isn't a direct bet on SPY going down. It's a bet on volatility spiking. When markets fall fast, volatility often reprices faster than you can adjust anything else. That's when an airbag hedge can matter.

Right now, VIX is around 16.5. That's not expensive fear pricing. It's closer to normal, which is typically when these hedges are most rational to consider, not when everyone is already panicking.

Structure

Example (illustrative):

Buy the VIX 20 call and sell the VIX 30 call, 45 to 90 DTE. This spread pays if VIX spikes meaningfully but caps your cost at the net debit.

When It Works

Fast selloffs. Gaps and shock events. Correlation spikes. "Everything is down at once" days where diversification temporarily stops working.

How It Breaks

Slow declines without a vol spike. You can absolutely have equity pain without VIX exploding. This hedge is for panic velocity, not every drawdown.

Treating it as a lottery ticket. If you buy a tiny airbag and expect it to carry the whole portfolio, you'll be disappointed. Its job is to pay fast in specific regimes, not to replace drawdown management.

Oversizing because it looks cheap. Cheap can become expensive if you repeat it mindlessly. Define a small crisis premium budget. If you can't tolerate losing that premium repeatedly, you're buying too much.

The Decision Framework: Match the Hedge to the Failure Mode

Here's the clean way to choose without overthinking.

Worried about a normal-but-painful drawdown? Put spread seatbelt.

Want to reduce long exposure and get paid to be cautious? Bear call overlay.

Worried about a fast drop, panic, or gap risk? VIX call spread airbag.

Small hedges that fail differently beat one big hedge that only works in one scenario.

Implementation Checklist

Before You Hedge

☐ What am I actually exposed to, SPY beta, QQQ beta, or single-name event risk?

☐ If SPY drops 3% quickly, what breaks first in my book?

☐ If vol spikes, what breaks second?

When You Build the Hedge

☐ Use defined-risk structures. Spreads beat naked options for most traders.

☐ Keep strikes outside normal noise. Don't hedge the daily wiggles.

☐ Give yourself time. Avoid living inside 7 to 14 DTE unless you truly mean to.

When You Manage It

☐ Predefine profit-taking. Don't improvise in a selloff.

☐ Treat hedge gains as a tool to stay calm, not as found money.

Frequently Asked Questions

Do I need all three hedges?

Not always. But combining one drawdown hedge (put spread) with one shock hedge (VIX call spread) is a common way to diversify protection across different market behaviors. They fail differently, which is the point.

Why not just buy puts?

Because tail pricing can be rich, especially when SKEW is elevated, and because unmanaged long puts can become a recurring premium bleed that traders abandon. Spreads make the cost psychologically and financially survivable.

Is now a good time to hedge?

When volatility isn't screaming, hedges are typically cheaper than they are during panic. Today's VIX reading around 16.5 is not panic pricing. That doesn't mean something bad is coming. It means the cost of being boring is lower than usual.

How much should I spend on hedges?

There's no universal answer, but a useful starting point: if the hedge cost makes you angry during calm weeks, it's too big. If the hedge payout wouldn't matter during a real drawdown, it's too small. Find the size where you can hold it without babysitting and where it would actually change your experience in a selloff.

Bottom Line

The market has a nasty habit: it makes protection feel unnecessary right before it becomes valuable. So the goal isn't to outsmart the next headline. It's to build a hedge policy that keeps you liquid, calm, and able to execute your core strategy when the tape gets mean.

Put spreads help with drawdown. Bear call spreads help you get paid to be cautious. VIX call spreads help when the market stops walking and starts falling.

And all of it only works if you keep the thermostat where it belongs: small enough to hold, large enough to matter.

Probabilities over predictions,

Andy

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Disclaimer: This is educational content only. Not investment advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.