| That's less than the -2.6% average peak-to-trough decline during that period as noted above. If enough investors were worried that a stock market correction may be imminent, these put options would be trading at a higher premium. Their complacency may be your opportunity to cash in before things get rough. Last year's stock market correction did not get going until October after the Federal Reserve intimated that it might need to raise rates aggressively to stave off inflation. This year, the Fed now finds itself in the opposite position of justifying a cut in rates despite low unemployment and steady economic growth. Combined with weak second-quarter earnings results, the message to the market may be that a recession is looming. In that type of environment, even a whiff of unexpected bad news could send the stock market tumbling. Crash Insurance Those same put options also can be used as portfolio insurance by long-term investors to guard against a stock market crash. In that case, buying a put option on the S&P 500 index at a lower strike price and with a longer expiration date makes more sense. For example, using a strike price of 2,700 would allow for a correction of 10% before the option has any intrinsic value. Extending the expiration date out to January 2021 would protect all the way through next year's presidential election. In late July, that option could be bought for $180. That puts the breakeven level for this position at 2,520 for the index, about 20% below where it was trading at that time. If the stock market never drops below that level by the expiration date, you are out the $180. That's the bad news. The good news is, your stock portfolio has retained most or all of its value, or even appreciated. Remember, buying a put option in no way limits your upside potential. Think of it no differently than you would any other insurance premium. You hope you'll never wreck your car or have your house burn down, but it's nice to know you are covered if that happens. There are other ways you can profit from stock market seasonality, and my colleague Jimmy Butts can show you exactly how to do that. Jimmy Butts, chief investment strategist of the premium trading service Maximum Profit, has devised an investment system that beats the Wall Street insiders at their own game. And it works in up or down markets. Jimmy's method may seem illegal, but believe me, it's perfectly legit. His system has shown the ability to generate $37,000 or more in additional income, with no added risk, within a year. Want to learn more? Click here for details. | 
Tidak ada komentar:
Posting Komentar