Using a Kick-Stand with Option Spreads

What is a kick-stand? Well, it’s a phrase we coined here at YachtMoney for a low-cost hedge to limit any follow-through on an already exhausted move.

The Break-Down

Let’s say we have a sell-off and a specific equity is currently oversold on multiple time-frames and is also hovering around the lower end of a channel or major support level. More often than not this would be a good opportunity to go long and catch a move for a reversal.

For the other 10% of the time when a move isn’t completed and wants to see more follow-through we are able to hedge our initial position with a much smaller opposing leg (known as a kick-stand).

Ideally price action moves lower and our kick-stand takes the heat (hedges the draw-down on our long position). We close out the kick-stand for a profit and also find ourselves deeper in the long position for less cost.

Since we play with longer time-frames on our core option positions, we get to experience a win-win. We made a little cash on the kick-stand and now the stock is making it’s recovery move back up to the upper end of the channel.