Dan Nathan's Hedging Strategy In The SPY

On CNBC's "Options Action", Dan Nathan suggested that investors should consider a hedging strategy in SPDR S&P 500 ETF Trust SPY.

He said that the market is implying a 2.5 percent move between now and the end of the next week. He is also concerned that the next couple of months could bring a lot of uncertainty. There's going to be a deadline on the China trade, the Mueller investigation is heating up and there are other issues on global growth.

To protect a long position, Nathan would buy the February 260/220 put spread for $7. The trade breaks even at $253 or 2.87 percent below the current stock price. The options structure offers protection until $220.