If you remember Black Monday on October 19, 1987, you recall the market declined 22.68% in one day. This was the largest one-day percentage decline in the DJIA. It took until early 1989 for the market to recover to its previous high set in August 1987.

In the aftermath of Black Monday, regulators changed protocols and created new trading curb rules, also known as circuit breakers. This allowed exchanges to temporarily halt trading after large price declines in specific indexes such as the S&P 500.

NYSE tiers and thresholds

The most recent rule 80B went into effect on April 8, 2013 and includes three tiers of thresholds. The NYSE set their thresholds that the S&P 500 index would have to drop to:

  • 7% (level 1)
  • 13% (level 2)
  • 20% (level 3)

If a level 1 or 2 threshold is triggered before 3:25pm ET, trading is halted for 15-minutes. If the threshold is triggered after 3:25pm ET, no trading halt occurs. A level 3 decline halts trading for the remainder of the trading day.

CME threshold

In addition to the NYSE thresholds, the CME adds a 5% price change limit during after hours trading. This applies to price increases and decreases.

Base price to calculate the 5% after hours limit is set from the weighted average price during the last 30-seconds of trading in the previous trading day. The CME publishes updated price limit guide daily with updated price limits on their web site.

Can a 20% decline happen in one day?

Yes but only during normal trading hours. Level 1 and Level 2 thresholds would halt trading for 15-minutes for each; however, if the decline happened after 3:25pm ET, no halt would occur unless it was a level 3 decline.

After hours trading is limited to a 5% price change so a 5% down move is a buying opportunity. Make sure any positions opened are closed before the regular trading session starts if you want to avoid risk of a further decline beyond a 5% decline.

How can I hedge my portfolio against a 20% or more decline?

  • Long PutDan Harvey and I prefer a long put approximately 6% to 6.5% below the current market. An 8-10 Delta call spread is normally sold to partially pay for the long put. We look for options approximately three weeks to expiration and to keep the total hedge cost around $5-$8 per day to recover $30,000 to $50,000 for a 20% market decline using SPX options or ES futures options.One advantage of a long put is you are guaranteed of getting the protection you think you're getting.
  • VIX CallsVIX calls are extremely liquid but are not based on the VIX index but the VIX futures. When the market crashes, the VIX and VIX futures will both increase, but you can't predict exactly how high either will go. This makes it difficult to determine what strikes to use.One technique is to purchase 30-day to 45-day VIX calls that cost approximately $0.10 or $0.15. This might mean your strike is around 45 with the VIX currently under 12. Don't expect them to make money unless there is an extreme market decline.
  • Put Back spreadA put back spread is constructed by selling puts at one strike and buying more puts at a lower strike. This makes the position net long puts but it has a “sea of death” where you will lose money if the market price is between the two strikes you are using and some time has passed. You can construct these spreads for a credit or small debit so they may be an attractive alternative.


Markets can decline up to 20% in one day during normal trading hours and 5% after hours. A 5% after hours decline can be a buying opportunity but be careful about closing your positions before the normal trading sessions starts.

Hedging your portfolio is a personal decision. You have to decide if you want a portfolio hedge and how much capital you are willing to lose if the market sells of 20% or more. The more you protect with a hedge, the more this will reduce the returns on your trading performance. It's a balance that only you can decide what you want.