Investors looking to protect their portfolios from potential market volatility ahead of the August CPI release may want to consider hedging with options. While the implied move in the CPI and FOMC is relatively low compared to history, there are ways to cheapen the protection without sacrificing too much upside potential.

One approach is to take advantage of elevated downside skew, which can be used as a funding leg to reduce the cost of hedging. By using this strategy, investors can purchase a Sep 19th expiry 99%-98% Put Spread for only 0.174%, which covers both events while maximizing potential profits.

The benefits of this approach are numerous. Firstly, it provides a cost-effective way to hedge against potential market volatility without breaking the bank. Secondly, it allows investors to maintain exposure to the upside while protecting against downside risks. Finally, with leveraged potential profits of nearly 6x (SPX Ref 6498), investors can maximize their returns while minimizing risk.

Hedging the August CPI release with an options structure can be a smart move for investors looking to protect their portfolios without breaking the bank. By taking advantage of elevated downside skew and using a cost-effective strategy, investors can maximize potential profits while minimizing risk.