Market Volatility and Options Profits
Many investors panicked when the market opened by gapping down on Monday, January 24, 2022. Russia is poised to invade Ukraine. Inflation is the highest we have seen in forty years. There are genuine worries that the Fed will not handle its rate increases well and either let inflation rage or cause a recession by tightening too much and too fast. And, there is the omicron Covid-19 variant filling up hospitals, sending folks home from work, and killing people. This is about market volatility and options profits.
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Good Reasons for the Market to Crash
The US stock market has been on an upward climb ever since the depths of the Financial Crisis. The Covid Crash (where we created millionaires) was only a temporary interruption for the Nasdaq, Dow, and S&P 500 which have all gone on to all-time highs despite an economy that is not totally recovered and still at risk due to the factors we noted above. So, when the S&P 500 closed on Friday, January 21 at 4396, opened on the 24 that 4303 and continued downward to 4239, the 3.5% drop seemed to many to be the start of a much-talked-about correction or crash. But, then the market turned around after midday and closed at 4413 which was above the previous Friday’s close!
Why We Trade Options
If you were purely a stock investor you might have panicked when the market fell on the 24th. There were certainly a lot of good reasons to believe that the long-predicted correction or crash was upon us. Then you might have sold everything to avoid worse losses only to see the market recover after mid-day. The beauty of options trading is that you can make money when the market goes up and when it goes down. And, you can use your options contracts to hedge your positions so that you know going into a trade what your maximum profit or loss will be.
When the market was down 3.5% at the middle of the day an investor with a crystal ball could have purchased the SPX and profited as the market recovered but they would have been at risk of losing even more if it had turned into a real correction or crash. But, an option trader could buy calls for a lot less and made the same profit when the market recovered. And, if the market had fallen the options trader would have been out the premiums paid and not the lost value of the total investment.
Being Ready for the Coming Crash
It turns out that January 24 was a false alarm. But, at Top Gun Options we believe that a market implosion is coming, probably in February but certainly before that if the world shit show of inflation, Russian adventurism, Covid, and uncertainty from the rest of the DRINCs continues. Getting long volatility with the VIX, puts on the S&P 500 are just a couple of the strategies we have mentioned here at Top Gun Options for being ready for the worst the market can throw at us. Most importantly, don’t fly solo into the coming storm.
Profit from Intraday Market Movement with Options
Time and time again at Top Gun Options we place trades that profit from short term upticks and downticks in the market. The S&P 500 closed on the 24th just a few points up from its close on the 21st. But, the S&P 500 moved 3.5% down and then up again during one trading session. Not all trades produce profits in a single day but well-placed options trades on a day like the 24th of January can result in profits so long as you are paying attention and not flying solo.
