You've heard it said, "One man's demise is another man's opportunity", haven't you?
Well being one who lived and was trading the markets during the October 1987 Crash i.e., Black Friday and Monday, I'm here to tell you there is money to be made, big money.
While the Wall street guru's occupy your time trying to figure out what the hell to talk about, money has already decided what will happen and are repositioning themselves for the next advance, which by our work should ensue very, very soon.
Long term technicals are screaming "OVERSOLD", which is bullish for the intermediate term, if your skittish, then we'd play, and were playing "straddle" option positions all last week. These positions are ideal for the kind of volatility we've seen in the last week (swings of 1000 points), was a crash back in 1987, today it's a completely different ball game.
WHAT TO DO NEXT?
Our work is telling us that the market is seeking out a bottom at around 77 -7800 on the dow. We are not taking a firm long position until the market has attained that objective. As we ease into that number, we feel that the market volatility will begin to wane as the floor traders begin to "suck" out the premium from the options market. Hence, we are planning on placing spreads, e.g., bear spreads (out of the money and above some ver key levels in the Dow).
A SPREAD - Why?
1. Whenever the market goes through this type of volatile period (up or down), it always pauses to refresh itself, readjust itself to reality and as it does, so goes the premium in the options as well as the volatility in all the indices. Hence, your "bear" spread position, should and would become profitable at a steady pace.
2. Though many of you reading this now, don't believe it, the fact is this as the market volatility evaporates, option premiums deplete and so goes the "crazy" movement/swings that we've become accustomed this last week. Therefore, the market may not see the "break-down" levels for many months to come, and when they do return to 11K to test that break-down (which I believe will be another short position), markets always RETURN to previous lofty levels, as if something was left unfinished.
HOW TO PROFIT IF YOU HAVE A PAPER LOSS?
It really is a simple tool that many traders have been using for decades - sell positions against YOUR HOLDINGS... Huh? Yes, most all of the exchange traded stocks have attached derivatives i.e., options. So, while you may have a paper loss, you still own the stock - right? Force the market to take it back, someone on the floor MUST TAKE (BUY) what you're willing to sell, THAT IS THEIR JOB!
It's important to get in the right mindset, yes your holdings are worth less (not worthless) in value, so why not sell "options" against your positions - going out three months or more where there is heavy premium and you can start getting back to even with the markets. Keep doing this month after month or quarter after quarter and you can wind up taking in 15% or more on your once lofty investments.
When the market and or your stocks get back to their higher P/E levels, higher prices and then you can decide to sell your holdings (and participate) in the next down-turn from those levels - the market will attempt a rally and those of you that got hurt, i.e., missed selling out at higher levels, and trust me many investor's will be selling out (getting even) ot the 11K levels.
These are two of the many ways we chose to invest in the current environment. No doubt these are turmultuous times in the marketplace, but make no mistake there are many, many fail-safes in place in which a trader/investor can profit - NONE OF WHICH WERE PRESENT IN 1929!
Trust me traders like myself are licking their chops at all the opportunity awaiting the nibble traders and investors. ~ Good Trading!
Article Source: http://www.articlesbase.com/investing-articles/how-to-profit-in-the-crash-of-2008-600059.html
About the AuthorMr. Lucci is a full time day and position trader and has consistently derived a six figure annual income from his trading since the CRASH of 1987.
Nothing in these articles is to be misconstrued as investment or trading advice. You are and should remain in total control of your actions, and no liability, implied or otherwise will lie with the author of these contributions. The information presented in and contained herein is as educational and opinion purposes only. Utilization of the materials contained herein is for you to utilize at your own risk and at your own discretion.
All contributions are made In loving memory of my good friend, fellow trader and mentor, Myer Muscatel - Innovative Options