For starters... have you looked at a 20yr weekly chart of the S&P?
While the markets appear scary, it wasn't really that long ago that we encountered a similar experience -- and history often repeats itself in economics. Beginning in 2000 and then fueled by 9/11/01 we saw the S&P retrace from 1,500 to 800. So this market adjustment isn't completely out of the blue. It is also interesting to note that that parabolic decent has been more drastic during this bear market than what we experienced in 2000-02, which typically means a shorter trend. However, I don't want to minimize the retracement over the last 7 days -- I know it has been painful for many individuals. One thing we do know is it's unlikely the market will flip immediately bullish again as it will likely take several months to establish a strong support level after this speedy decent. Therefore, we need to be prepared to implement strategies that will enable us to continue being profitable in a sideways or bearish market.
One simple strategy that would work well for our Buy and Hold friends would be to execute the sale of some covered calls. For every 100 shares that you own of an underlying security you are able to sell 1 option contract. Therefore, if you don't expect your stock to rise in the next month, and you don't really intend to sell it -- you may as well sell somebody the option to purchase your stock at a premium price (after all, you don't really expect the stock to hit that price!)
EXAMPLE:
If you don't expect GM to increase much over the next month, you might be interested in selling a $7 call option for a profit of $105 -- all of which is yours unless the option is exercised.
The only potential "loss" in this scenario would be unrealized gains -- that is, if GM jumped to $8, you would be forced to sell your shares for $7. The reality is, you should be ecstatic to sell GM for $7 in the next month! If that did happen, you could then turn right around and buy the stock again if you'd like.
I have heard of people applying this strategy so consistently that they paid off the entire initial purchase price of their underlying security and were simply collecting "rent" on the stock each month. In fact, if you bought 100 shares of GM right now for $4.89 you would have it "paid off" in 5 cycles -- or roughly 5 months! Or perhaps look at the numbers this way: for roughly a $1,000 investment you could generate about $200 a month cash flow!
One simple strategy that would work well for our Buy and Hold friends would be to execute the sale of some covered calls. For every 100 shares that you own of an underlying security you are able to sell 1 option contract. Therefore, if you don't expect your stock to rise in the next month, and you don't really intend to sell it -- you may as well sell somebody the option to purchase your stock at a premium price (after all, you don't really expect the stock to hit that price!)
EXAMPLE:
If you don't expect GM to increase much over the next month, you might be interested in selling a $7 call option for a profit of $105 -- all of which is yours unless the option is exercised.
The only potential "loss" in this scenario would be unrealized gains -- that is, if GM jumped to $8, you would be forced to sell your shares for $7. The reality is, you should be ecstatic to sell GM for $7 in the next month! If that did happen, you could then turn right around and buy the stock again if you'd like.
I have heard of people applying this strategy so consistently that they paid off the entire initial purchase price of their underlying security and were simply collecting "rent" on the stock each month. In fact, if you bought 100 shares of GM right now for $4.89 you would have it "paid off" in 5 cycles -- or roughly 5 months! Or perhaps look at the numbers this way: for roughly a $1,000 investment you could generate about $200 a month cash flow!
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