This is the strategy I’d focus on now
Welcome to October 19th (That Date Ring a Bell?)
Time to Reflect a Bit
Most people in the markets now were probably in high school or junior high back then. I was trading in bond options on the CBOT. Rates had been rising all year (bonds had been falling), yet the stock market had been defying gravity and rallying in the face of it. The dollar had been falling, yet the market continued up – I know, I had shorted it repeatedly and been stopped out repeatedly.
Then it happened. In the early fall people began to come to their collective senses, and the market started falling. It began picking up momentum in October leading to the climactic sell off of October 19th. All the stock exchanges closed, and the only hedge available to the entire world was the S&P pit at the CME (and to a lesser extent the “Maxi” at CBOT). The entire world tried to lay off their risk on 500 guys from Highland Park, and the market collapsed. Those guys stood in there and made a market when everyone else ran for cover – and for their efforts they got blamed for the crash.
That day and the days that followed are burned into my memory. People wiped out in minutes, guys crying in the elevators, vomiting in the bathrooms. We had our “crash” in the bonds the following day. When the Fed rushed to provide liquidity the following day (and orchestrate some futures buying – the birth of the “team”), bond futures were 10 points higher, eurodollar futures were 330 bp higher on the open. Many people in the interest rate complex were then wiped out, as their brethren in the stock indices had been the day before (I got buried also), and the whole scene repeated itself.
That experience scarred me for life and left me very risk averse, which is why I like to trade options. Yes, they are a pain in the ass, yes, you get pounded with “ticket charges” and sorts of fees, yes, and they are difficult to understand sometimes. But the bottom line is that you can sleep at night, and that is worth something.
This Market Is Ugly!
As I mentioned last week, I would be watching the earnings announcements this week very closely for a “tell” on which way this market would be heading. So far, by and large, the announcements have been positive. Yet the most the market could do was manage a dead cat bounce. It looks set to test the recent lows now, and the action here in Asia and in Europe today has been ugly. Last night I was praying
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PowerRating) would have good earnings so I could load some puts into the wheelbarrow – missed my chance. I believe any bounce needs to be sold until we see a climax. If you want to bottom-pick, I would encourage you to use options to do so.
Joe Corona
Joe Corona is a 23-year veteran trader who makes his living trading options and other derivatives. Mr. Corona has been a floor trader on numerous exchanges including the CBOE, CBOT, and CME. Joe most recently spent 4 years as Head Trader for Market Wizard Tony Saliba at Salibaco, a proprietary trading firm. He has also been an options instructor for the International Trading Institute where he has trained hundreds of options and derivative traders for major institutional trading desks worldwide. Joe is the Director of the Asia Pacific region for CDLS Consulting, LLC which specializes in trading U.S., European, and Asian options and derivatives.