Mike Khouw's SPY Hedge

On CNBC's "Options Action," Mike Khouw suggested to the viewers a way to protect their portfolios from downside risks. His main concerns going forward are potential tapering after the Fed meeting in September, seasonal post-Labor Day volatility and geopolitical risk in an uncorrected market.

He would use options on SPDR S&P 500 ETF Trust SPY to get protection in case a correction of 10% happens. Specifically, he wants to buy the November $440/$400 put spread for $5.75. The trade breaks even at $434.25 or 3.55% below the closing price on Friday. It can make a maximal profit of $34.25 if SPY drops to $400 or lower at the November expiration.