A SPY ratio put-spread hedge

From the Daily Options report, comes this suggestion…

For a broad equity market hedge in the event of a modest sell- off, we recommend using the SPDR S&P 500 ETF (SPY, $114.12) and would position in November to encompass a significant portion of earnings season, which is expected to commence October 7 with Alcoa’s (AA, $12.06) report. The November SPY 112/105 1×2 ratio put spread is offered at $0.44 and exploits a four-volatility-point differential between the two series.
The position breaks even at 111.56 and makes a maximum of $6.56 with SPY spot at 105 at expiration, or 8% below current levels, for a 17-to-1 payout ratio. With SPY below 105, the ratio put spread commits to getting long the shares at the equivalent of 98.44 (long stock at 105, less a seven dollar gain on the 112 puts, plus the premium paid). Importantly, in the event that the market continues higher and SPY spot remains above 112 at expiration, the maximum loss for the position is the $0.44 premium, which we view as a reasonably inexpensive hedge for protection 8% lower.

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