Half my portfolio is the S&P 500, and today that means a large bet on AI whether I like it or not. Before earnings season, I want some insurance against a sharp downturn.
My approach is to buy puts on the most volatile part of the market, the part I expect to fall hardest if the AI trade unwinds. Right now that's memory chips. Memory stocks have had one of the biggest runs in the market, and the good news may already be priced in: Samsung just reported the best quarter in its history and its stock fell anyway.
The vehicle I'm looking at is the Roundhill Memory ETF (DRAM), which closed at $57.19. I'm considering puts at or slightly in or out of the money, at roughly $600 per contract, sized at 1-2% of the portfolio in total.
This is a hedge, not a bet. Nobody buys boat insurance hoping the boat burns down, and I'm not buying these puts hoping my portfolio falls. If memory stocks keep rising, the puts expire worthless, and the rest of my portfolio should more than cover a 1-2% loss. That's the cost of the insurance.
If the AI trade does break, the puts could be worth several times what I paid for them. The payoff isn't meant to offset the whole decline. It's meant to give me cash at the moment volatility is highest, so I can buy more of the companies I like at lower prices.
Insurance isn't free. Memory's volatility is exactly why these puts cost about 10% of the ETF's price, and a 4-5x payoff would take a very large drop. I'm prepared to lose the full premium.
Logged October 9, 2026; prices as of that day's close. Opinion only, not investment advice. Options can expire worthless.