Using options to create an income stream to ride out the market swings as volatility spikes

Investor attention remains focused on the Iranian conflict. Crude oil futures surging over 100% in recent weeks trading up to $119 has pushed the S & P 500 lower. I want to use SPY put options to create income on this pop in volatility and the associated elevated option premiums in the widely traded S & P 500 Index ETF (SPY) . The S & P 500 has indeed pulled back nearly 6% from its late-January highs, with the index currently testing critical support levels around 6,700. However, the “buy the dip” mentality is not as straight forward as usual due to the complexity of the current global macro environment in the Strait of Hormuz. Technically, I want to rely on — and even lean against — the 200-day moving average, which has been quite supportive in the last year. That being said, in the event the war lasts longer, or the off ramp is not as clean as market optimists (like myself) predict, we have to define the risk and the downside exposure. Data is being downplayed as the U.S.-Iran war remains front-and-center for risk appetite, but the Fed’s preferred indicator in PCE was slightly cooler-than-expected this morning. The personal consumption expenditures price index grew 2.8% in January year over year . That’s below a Dow Jones consensus of 2.9%. When volatility and emotions are high, I try to capture the spike in options premium … not always easy to do nor recommended, though. In this instance, I am selling a put spread which allows an investor to collect a significant amount of premium as the VIX stays stubbornly around 25. I am selling the SPY put just about 2% lower from where it is currently trading but, I am keeping in mind that the S & P 500 just had its lowest close of 2026. The trade Sold the March 27 SPY $660 put for $9 Bought the March 27 SPY $640 put for $4.25 An investor collects $4.75 per one put spread, or $475. This put spread was executed when SPY was roughly trading $470. DISCLOSURES: Kilburg has this spread on and is also long SPY. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.