Staying calm during big drops in the market is always difficult for the majority of investors. I have received a lot of emails over the past couple of days as the markets move lower. But remember that this is still a bull market. A lot of the sell-off is being caused by overseas currency concerns of third world countries. In particular concerns over China are weighing heavily on investors. But I like this kind of market and look at opportunities. I then put in bids to sell on puts at strikes where I would own a company or certainly where I would trade it.
Keeping Cash Back
If you are like me and have kept some cash back, then it becomes a matter of what stocks do I like and at what price point. Not all stocks are selling off this morning. For example, Microsoft Stock is pushing back up to $37.00. Starbucks is up over 2% to start the day. PG Stock had excellent revenue and earnings and it is up 3% back to $80.00.
Big Cap Stocks
Remembering that this is a bull market it is important to keep things in perspective. We want to take advantage of these strong dips like today to look for opportunities in those stocks that we really like. I prefer big cap stocks but I acknowledge a lot of investors love the small cap and speculative trades. I still think big cap stocks is the only way to invest but certainly lots of my investor friends have made a lot of money in mid and small cap stocks so I cannot argue their returns.
What I like about big cap stocks is the security of their wide product lines, big cash moats and dominance of their respective industries. When these type of stocks plunge I look for opportunities.
BMY Stock
For example BMY Stock this morning plunged to $50.31. I sold the Feb 22 $50 naked puts and bought 500 shares of stock. What a terrific opportunity this plunge created in BMY Stock. This is the type of trade I enjoy and having a watch list of stocks is what assists. Keeping my alerts set for moves and half a percent warns me through texts to my cell that this opportunity is opening up. Then I put in a bid a bit low and sometimes get a fill.
Scaling Into Trades
I scale into my trades in a market such as this. The market direction volatility creates this terrific chances and as an investor I slowly place my trades in small groups. For example in DuPont Stock today is down over 2% as it plunges back to support at $60.00. This is just an excellent Put Selling opportunity but I scale into it because I could be wrong and support could break at $60 sending the stock to the next level of support around $57.00.
I sold for example just 5 naked puts for Feb 22 expiry at $60.00 for $1.45 and then sold 5 at the Feb 22 $57.50 for .58. I will then look to sell more should the $60 support break and the stock move lower.
This kind of sell-off brings in opportunities but at the same time it is important to stay consistent with the strategies and not commit all my capital here. This is a chance to earn stellar put premiums but at the same time realize I could be too early and many of these puts could end up in the money. This is why I stay with my large cap watch list of stocks.
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