Market Panic? Trading Options? The Fed?

The Fed was pushing up the markets over the last few years. They were right, and have been right all along. The doomsayers were wrong. Now, after being right for 5 years suddenly the Fed has it completely wrong, —or right, —-or they don’t have a clue. It’s all BS and the truth is that no one knows what the future brings. We must choose to trade based on history and experience and use this knowledge to gain our edge. This kind of market, where the DOW is down 300 and the S&P is down 400, is a newsletter writer’s dream. Panic sells and you can be expecting to be contacted by lots of publishers over the next few days and weeks.

They will be selling you “the answer” to your panic. Really, there is no one answer for all traders. Each person’s financial and mental situation is different. Ultimately, you just have to figure it out on your own. Stay calm and use your brain. My experience tells me that whenever you have a huge market drop like this one – where there is no clear reason for it, but instead a bunch of possible future events – you are looking at a buying opportunity. And that opportunity may not last long. If you have been here before, you may need another voice to remind you of the relevant history – if you have never been here before it might actually be better to do nothing but watch and wait. Yes, you will most likely kick yourself for missing it, but you will preserve your account and resist the urge to panic sell. This is always the wrong response.

What to do? If you were leveraged, or trading on borrowed (margin) money, you may be getting a margin call. You either pay up or they sell your stuff. Face it. Do it – and learn from it.

If you are not in that position – if you have been trading properly and saving cash for this day – it’s here. Now, you need the strength to pull the trigger and buy something. I would urge you to read some of Warren Buffett’s writings. This is when money is made, not when the market is high. You gotta buy low and sell high. The market was too high, now it’s probably too low. Eventually, mean reversion will take hold. As always, I like to explain what I am doing, and you can take it or leave it. I am your window into the mind of an experienced trader.

My portfolio is falling, but is largely in cash. I have been waiting for this opportunity. But today, I am not out there buying everything in sight. It’s impossible to know when the market sentiment will change and suddenly everyone switches to the buy side. Those who are holding cash are in no hurry. You buy a little at a time, but you do buy. Some examples of my trades today:

I was short an Apple 500 put from last week. It’s one of the only things working today! The fact that Apple is basically unchanged today does tell us that it has probably found a bottom. I think Apple can be bought as the market calms down over the next few days. I am thinking about selling another Apple put today. The ATM weekly put is over $7 right now due to the high volatility.

I am short a good number of DIA calls that are now close to 20 cents. I am thinking it is time to buy them back so I can sell a pile when the market calms down. Selling DIA calls is my primary hedge that is being used to raise Theta while lowering Delta. Today, I’ve also sold a small amount of puts on Boeing, Chesapeake, Intel, Microsoft, Target, the XLK and a few others. Do you see the theme here? These great companies are on sale now and I am glad to increase my positions, but carefully. They may still be cheaper tomorrow. The idea is to gradually put the cash to work and hopefully find myself low on cash about the same time the market reverses. Follow along on my WordPress blog or here on DeepPocketOptions to see how I navigate these very choppy waters.

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