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Options Action: SPY

Options trader Brian Stutland on Thursday explained how to ride the upward climb in the markets while protecting one's positions from a sell-off.

Take the SPDR S&P 500 , for example, which is an exchange-trade fund that tracks the S&P 500 index. If interested in going long SPY, Stutland said one could buy an in-the-money option instead of buying the stock.

Should the VIX get above 20, Stutland said this is a "safer" way to play the SPY. So here's how it works:

***BRIAN'S SPY TRADE***
Buy Apr. 125 call at $6.50

***HOW BRIAN'S TRADE WORKS***
Break even at 131.50 (up roughly 1,5 percent from current levels)
Above 131.50, unlimited profit potential
Below 125, only $6.50 is lost

To learn more about this trade, watch the video.

A "Fast Money" contributor, Stutland is also founder and president of floor trading company Stutland Equities.

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Trader disclosure: On Jan. 27, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova is short Gold. Joe Terranova Owns (VRTS), (C), (UPL), (GM), (PEP), (TLT), (MS), (POT), (AAPL), (ARUN), (LTD), (PVH), (CVI), (CVE), (CPX), (CNQ) and (FCX). Karen Finerman owns (AAPL), (BAC), (MSFT), (GOOG), (HPQ), (C) and (BP). Karen Finerman owns (JPM) and (JPM) leaps. Jon Najarian owns (FRO), is short (FRO) calls. Jon Najarian owns (F), is short (F) calls. Jon Najarian owns (GM), is short (GM) calls. Jon Najarian owns (GS), is short (GS) calls. Jon Najarian owns (MOS), is short (MOS) calls. Jon Najarian owns (WMT), is short (WMT) calls. Jon Najarian owns (VZ), is short (VZ) calls. Jon Najarian owns (SNDK), is short (SNDK) calls. Stephen Weiss owns (PZN), (SMCI), (MWA), (AGU), (FAS), (JPM), (DVN), (COP), (DZZ), (MSFT), (QCOM), (HPQ), (FWLT) and (V). Stephen Weiss is Short (GDX). Stephen Weiss is short (GLD).

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JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NCRI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)

KAREN FINERMAN
Finerman's firm is short (MDY)
Finerman's firm is short (SPY)
Finerman's firm is short (IWM)
Finerman's firm is short (IJR)
Finerman's firm is long S&P puts
Finerman's firm is long Russell 2000 puts
Finerman's firm owns (AAPL)
Finerman's firm owns (BAC) leaps
Finerman's firm owns (BBY)
Finerman's firm owns (BP)
Finerman's firm owns (HPQ)
Finerman's firm owns (IBM)
Finerman's firm owns (JPM) and (JPM) leaps
Finerman's firm owns (MCD)
Finerman's firm owns (MSFT)
Finerman's firm owns (WMT)

COLIN GILLIS
BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from (MSFT)
BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from (AMZN)

RON SHAH
Ron Shah has no disclosures

BRIAN STUTLAND
Stutland Securities is a Market maker holding positions in VIX futures and options
Stutland Securities is a Market maker in SPX
Stutland Securities is a Market maker holding positions in VXX options and stock

DAVID MILLER
Miller has no disclosures

JON NAJARIAN FAST FIRE 12/17/10
Jon Najarian had no disclosures for (COH) or (PFE) on 12/17/10

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