So, is my newb math right regarding these SPY puts? No, except it's not just the math, but it's the math in concert with the intuition in back of it. Your math would be correct if your loss was covered at the strike of your put. But in fact, your coverage only *begins* at that strike. Thus, if the market dropped to $190, you would've paid 86¢ for the $1.00 you'd be able to recover. You'd want to re-figure your coverage (for a 50% drop) at 164 -- you'd pay 86¢ to get $35 of insurance, given a 50% drop. (Etc etc etc, for each dollar between 328 down to 164.) (And BTW, as you're eyeballing the 163, 162, 161,..., drops, there will still be a premium adder compared to current market price -- that's the time/vol/extrinsic that will diminish logarithmically as expiration approaches.)
No I think I fully understand what you are saying. Strike is 191. Even if SPY drops to *191*, and expires there, I get nothing at the exercise and I'm out the option premium. I would be OK with that. I would roll the options say every 3 months or so to keep them out a significant duration so I would never need to repurchase in a significant down-turn when the premium is through the roof. It is just pretty cool that for less than 1% a year I could never, EVER have to risk losing more than 40% more/less (assuming I was in SPY).