Here's how you can hedge against the Coronaviru

US Stocks are off only 3% from the recent high on January 22, 2020, considering that Coronavirus cases are still growing each day we believe there will be continued pressure on markets globally. While many containment strategies have been put in place to stem the spread of the virus, experts are still learning about the human to human transfer risk of the virus. We expect travel, transportation, and other related sectors to decline as a result. As workers stay home, offices and factories suspend operations or take precautions to keep people healthy, oil inventories may rise and put additional pressure on Crude Oil which is already down $15 this month to $51.41 today.

Exxon Mobil and other oil producers have been getting crushed and are trading at or near multi-year lows and if oil continues to slump expect further declines across the energy sector. We are buying March expiration $52.21 Puts on the XLE for $1.28, as XLE currently trades around $53.30.

The Chinese government and/or American government may announce stimulus to combat the drop in markets and business activity, which could spur markets to run up in the short term, and this is a risk of this trade. However, we believe this is a prudent hedge against further drops if you want to stay in the market and also have some downside protection.