Mike Khouw's SPY Trade

On CNBC's "Options Action," Mike Khouw spoke about an options trading strategy in SPDR S&P 500 ETF Trust (NYSE:SPY). He wants to take a long position in the S&P 500, but he finds it risky because the recent move higher could be a head fake.

Instead of buying shares, he wants to use call options and limit his risk. Specifically, he wants to buy the October $295 calls for $2.70. The trade breaks even at $297.70 or 1.14% above the closing price on Friday and if the price goes against him, all he can lose is the premium paid. Khouw believes it would be exceptionally risky to buy shares in SPY right now.