Scared? Here are top correction protection plays

Published Tue, Jan 6 201512:47 PM EST

It was a jarring start to 2015 after a long, smooth ride. The S & P 500's losing day Monday—it's worst in three months—snapped a 264-day streak without a four-day loss. Fallout from oil's continuous drop, fears of another crisis out of Greece and the threat of an interest rate increase by the Federal Reserve have traders dusting off plays that should rise if this five-day selloff turns into an all-out correction. Among the more popular protection plays are bond ETFs, dividend stocks, gold and some careful options strategies. It also may be time to put in what graybeards on Wall Street call a few "silly bids." A look at the last selloff for the market sheds light on some trades that investors are putting some money into once again this week, namely bond ETFs. From its intraday high on Sept. 19 to its intraday low on Oct, 15, the S & P 500 lost 9.8 percent. The best performer during that period among iShares class of ETFs was the iShares 20+Year Treasury Bond ETF , up 7 percent, according to Kensho, a quantitative analysis investing tool. That ETF invests in Treasurys with a maturity greater than 20 years. The iShares 10-20 Year Treasury Bond ETF and the iShares Core Long-Term Bond ETF both posted a 4 percent return during the October pullback. The iShares Cohen & Steers REIT ETF , which invests in the equities of high-yielding real estate investment trusts, returned 3 percent. All of the ETFs above are in the green for 2015, but with minor gains so far. Read More The market storm is not over yet, analysts say Dividend stocks won't be immune to a powerful correction that takes down almost every member of the S & P 500, but they will fall by less. Add in the dividend income, and one is not doing too badly. Plus, investors said the selloff will provide an attractive entry point for these stocks, which should do well in a high-volatility, low-rate environment. "Defensive names with great dividends are going to see lots of buying interest," said Scott Nations, president of NationsShares. His favorite names are AT & T , which sports a 5.6 percent dividend yield, Mattell , yielding 5 percent, and Phillip Morris , with a dividend payout of 4.9 percent. With the 10-year yield breaking below 2 percent on Tuesday, those payouts look rather attractive, Nations said. Gold was up 2 percent during the October stock market swoon and some investors believe it will protect them this time around as well. Peter Boockvar of The Lindsay Group believes gold is in for a good year as it becomes the first commodity to rise out of the ashes of the vicious bear market happening to that asset class. Read More Gold first commodity to rise from bear market? The CBOE Volatility Index held above 21 on Tuesday after jumping 12 percent to that level on Monday. It got as high as 26 last October and there are some options strategies to profit from that move if it happens again. "To hedge an entire portfolio, we recommend the purchase of $VIX calls that are roughly 7.5 points out of the money," said Ryan Brennan of McMillan Analysis Corp. in an email. Those calls will appreciate in value as volatility rises and the market falls. McMillan found that this is a more profitable way to bet on a selloff than buying puts on the S & P 500. And last, but not least. It could become "silly bid" time if the selling starts to get intense. Art Cashin, the legendary director of NYSE floor operations at UBS, recommended this practice in some of his daily notes to clients during the credit crisis and other noteworthy stock market routs. It entails putting in a limit order for a stock one would love to own ... at a price way below the market. Said Turney Duff, a former hedge fund manager: "What I used to do was identify my favorite names and put buy orders in below the market, at levels I think are a gift. Because the truth is, when the stocks get to that level, it's much harder to buy them." —CNBC's parent NBCUniversal is a minority investor in Kensho.

Traders on the floor of the New York Stock Exchange.

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It was a jarring start to 2015 after a long, smooth ride. The S&P 500's losing day Monday—it's worst in three months—snapped a 264-day streak without a four-day loss.

Fallout from oil's continuous drop, fears of another crisis out of Greece and the threat of an interest rate increase by the Federal Reserve have traders dusting off plays that should rise if this five-day selloff turns into an all-out correction.

Among the more popular protection plays are bond ETFs, dividend stocks, gold and some careful options strategies.

It also may be time to put in what graybeards on Wall Street call a few "silly bids."