MM42 - Hedging with Weekly Puts

I want to talk about something we have not discussed yet in the Options Goddess community. This is not financial advice, but some of you are short term traders and I want to give you a powerful new tool today. I am going to use Astera Labs as the example.

Last week you saw me close out a short June 5th 250 call. We had made our way back down to neutral on mean reversion, and I really felt we were going to break out any moment. I bought back the short call. Breakout traders went long stock, buying on the breakout at roughly 263. Well, now we have an interesting dilemma. The stock has run from 263 all the way to 305 at Friday's close. What should be running through your mind right now?

Number one, you are getting confluence sell signals. Number two, mean reversion is at positive 2.6. Both of these are red flags. So if you did not sell your shares at the close on Friday and you held them, and you are trading in 100 share increments “or close”, this is where options come in.

Strategy 1 of 3: Buy a Weekly Put

Let me show you the first thing you can do. You go out to next Friday, only seven trading days away, and you buy a put to protect your position. Markets are closed on Monday. You look at the 280 put and it costs about $6. I do not love paying $6 out of my gain, but it serves a purpose. It guarantees I lock in my profit below 280 minus the cost of the put, and I can still allow the trade to run for another week. I sleep at night, but I still don’t care for the risk/reward.