Trading the Dubai Selloff

Today we are selling the aftermath of the previously announced Dubai announcement about its debt. The CBOE volatility index is popping over 25% and the S&P is currently down 25 points. All in all the $60 billion that Dubai could default on is pittance compared to something like Lehman, who had over $600 billion in debt when it went belly-up.

So today I feel that you have to take a targeted shot at being long with a hedge. I am selling put 1 x 2s in the SPY around the 96-97 level. You can take down a net credit up front, have a long put option to capture any further declines next week, and have a predefined entry level to get back long.