OMG, Time To Panic!

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April 8, 2012 4 comments

Ahhh, the markets are crashing! The economy ONLY added 120,000 jobs last month! Must be time to panic and sell everything, right?  If you’re having this reaction, then don’t worry, you’re probably not alone.  Markets correct, it’s a fact of life, there’s nothing you can do about it, other than stay rationale, be smart and stick to your trading plan.

Let’s look at things objectively for a minute.  The economy added 120,000, that’s a fantastic result and a far cry from the depths of the recession when the economy was losing around 400,000 per month!  The unemployment rate is down to to 8.2% having been as high as 9.7% as recently as late 2010.  Don’t get me wrong, things are not all rosy in the US, and I am concerned about the long term picture, but for the moment, we are still in a bull market and it must be viewed as innocent until proven guilty.

Futures on the S&P500 are indicating a drop of around 17 points at the open on tomorrow, that’s just over 1%, which is nothing really.  It’s just that investors have been lulled into a false sense of security but this relentless bull market and low volatility environment of the last 5 months.  The key tomorrow is to stay calm, stick to your trading rules and evaluate new trading opportunities.

Personally, I will be waiting for at least half an hour or so to see how the market reacts to the intial selloff.  If we see some strength, and the S&P 500 bounces off support around 1370-1375, I will look to start building some positions will Bull Put spreads.  I’ll do this gradually and average in to my positions in case the market continues to fall.  There’s nothing worse than taking a big hit a day after placing a trade.

So, I’ll say it again, the most important thing tomorrow is not to panic and make sure you stick to you trading plan. This is what it takes to be a great trader, how will you react when things start moving against you?

Leave a comment below and let me know what you plan to do with your portfolio this week.

  1. michael cikvasvili says:

    To my mind, the question to consider here is this: Is it preferable to have a small correction here before the earnings season, or a giant one later during the said season with the stocks priced for perfection and on edge about even a blemish on any report?

  2. JR says:

    Good Advice. Thanks for reminding us of not to panic.

  3. Bddemers1 says:

    I was North of center on my SPY and DIA iron condors so the move South was good for me. I was at the peak on DIA and closed the position for a nice gain. My SPY I.C. is still open and dead center. I will let it expire for max profit this Friday. I opened a May EEM I.C. and also a May SPY I.C., even though the April is still open for two more days. The credit was good and the spread was 11 points. As far as all the hoopla about a correction, I don’t really care much. Adjusting an I.C. to the downside after a big move has been fairly painless even back in Oct ’11. Credit is good with the higher volatility. I also have one SH call and one VXX call to offset a huge correction. Cheap insurance. Take care. Brian D.

    1. Hi Brian,

      Thanks for your comment.  Yeah, the mini-correction probably helped a lot of IC traders.  I like to use VIX calls to hedge, but may look at VXX instead.  What criteria do you use for your hedge?

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Options Trading 101 - The Ultimate Beginners Guide To Options

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