As the market is driven by the emotions of fear and greed we can always count on rising and falling markets.
History has shown that the market does have incredible run ups (i.e. the tech boom) and incredible collapses (i.e. the tech crash). In the big bull market of the late 1990's/2000 everyone was making money until the market crashed and then a lot of people gave back all their profits while others lost their shirts.
How many people do you know actually profited from the crash?
We all knew it was coming, didn't we?
TIP: One of the most profitable things we can do as an option trader is to buy puts in a falling market. It sounds too simple I know but often it's the simplest things that can produce the most profitable results.
I recently read of about a woman who bought $10,000 worth of puts on the S&P 500 a week before the massive stockmarket crash of 1987.
She was only a beginner to option trading but she knew enough to see that the market was sky-high and that there were dark clouds on the horizon.
She was quite surprised (over the moon!) to get a call from her broker on the following Monday saying that her puts were now worth $500,000!
As everyone was panicking, she was quietly unaware that she was making an absolute fortune! Hard to believe I know, but the lesson here is that you don't have to be a rocket scientist to make money by trading options.
Now we can't go back in time and make that trade for oursleves and when it comes to crystal balls, well mine is as good as yours...but we can 'expect' that the market WILL crash again (it always does) and all we need to do is to wait patiently for that turning point with our fingers on the put buying trigger.
A crashing market is like an option trading gift from the gods as what goes up in the stockmarket often comes down even faster but not so fast as to miss out on making profits.
Just look at Enron for example. It was declining strongly for months before it rolled over, a simple look at it's stock chart would tell you that it was a screaming sell.
All I remember seeing on CNN was the reporters saying, "Oh it's terrible, people are losing their retirement savings!" etc etc but not once did you here them say, "Wow Enron is dropping like a stone, what a great time to buy some puts!" Now that would have been some helpful news to stockholders.
So if you're a stockholder I must ask you, "Do you want to crash and burn or crash and earn when the next wave of fear hits the markets?" I know which side I'll be on!
BONUS TIP: If the markets are sky-high and you see a picture of a big bull on the cover of Fortune magazine and you're getting daily stock tips from your waiter or taxi cab driver, you'll know the next crash won't be too far away!
At these times, everyone's a buyer and when there's no buyers left to bid prices higher, stocks have got nowhere to go but down.
Until then, click here to learn more about a great resource for predicting significant turning points in both the overall market and individual stocks.
This unique and powerful system has an astonishing 80% success rate!
Option Trading Tips - Credit Spread Magic
You may or may not have heard of credit spread option trading but they can be used to profit in bullish, neutral or bearish conditions.
Option Trading Tips - Covered Call Cashflow
Writing Covered Calls is a conservative strategy where you buy a stock that you would like to invest in and then write a call option against that stock.
