Mike Khouw's Energy Select Sector SPDR (ETF) Hedge

Mike Khouw spoke on CNBC's Options Action about a way to hedge exposure in the energy space for traders who are worried about further declines. He suggested a put spread in Energy Select Sector SPDR (ETF) XLE as a way to protect against losses. Specifically, Khouw would buy the September 70 put for $2.20 and sell the September 65 put for $0.70. The put spread would cost him $1.50 and he would get a protection below $68.50. The maximal protection would be $3.50. Khouw added that a lot of bad news is already in the market and at some point he is going to consider a bullish position in the energy space.