How best to make money in mkt crash?

D

darp

Hi,

Been a couple of years since have been on the options board here. I have become quite negative on mkt, and think a crash may be imminent. Part of the reason is think we are in depression not a recession, and have thought that since Oct 2008. So far still think that is the case. The % of unemployed for 27 week or longer is today about TWICE what it has been at all previous peaks since 1940, it at Great Depression levels now.

Whether am right or not is not the point. The point of this post is how best to take advantage of Bear Mkt with options? In Fall of 1999 I thought Internet stocks would crash in Spring of 2000, but again how to make money of that? I made none, as did not want to short Internets.

Have asked this question of Think or Swim folks all they said was sell credit spreads above the market, too boring not enough upside for me.

What am doing now I am both buying SP Puts and vertical Put spreads (SPY August 98-92) for about .70.

I am very good at making money in bull mkts, am naturally bull biased and made over 100% in 2009 (on bull side). But no good at all making money in Bears even when one.

But know that there are very expert Option traders on this board that understand the greeks better than me.

I would buy Put Back-spreads,expect the lower ones have higher implied vol, ruining that strategy. The ideal trade would be lose practically nothing if mkt stays even or goes up, and make killing on big drop. OK that is impossible, but what is the closest to that that is possible with current IVs?

I think SP500 could be 800 between Oct-Dec. Heck Precter (Elliot Wave)is calling for 400 om DOW by 2016 (do not believe it). But quite a few are seeing right now as end of this rally, so I want to get into most effective option strategy to make money in drop.

Any ideas will be greatly appreciated.

Thanks, Darp
 
You may consider a split strike reversal : SPY at 100, sell 105 call buy 95 put. If you absolutely must have it for a credit, then ratio it 2x3 instead of 1x1. With your timeframe is biggest challenge is how far can you go out in time. Easiest solution here is buy LEAP puts.
 
you can sell the aug spx 800 calls and buy the aug 950 calls for 140 credit, 10 risk,you can do this month after month,if one of the months hit, you'll do ok
 
Could do a Back-Ratio, or various diagonals. Example: Sell ATM back month, buy a bucket load of OTM puts front month. Toss Coin. :)
 
Interesting ideas.

jj90 will look into that, try it in Hoadley.

Ammo, I will compare that to buying a 940 Put, it does have 14 to 1 potential. Maybe go further out and diagonalize it.

Redeye, could be a big winner, but obvious big theta hit.

Athlon, if remember right that is a very wide back-spread. So has IV skew fighting it. Maybe I can do vertical in middle range that benefits from the skew and prevents a big loss if it only gets half way there.

Thanks all, and open to more ideas
 
I checked out Nov 800-950 Calls, for Globex it shows 295-168 so about 23 cost. Using puts its 15-37 or 22 cost. So using puts seems easier. And is the original strategy I was planning.

BTW in IB I have choice of Globex and CME, which is better?

Is there better spreads on another instrument, or better moving index to do this with?

TIA, Darp
 
I put in a Nov 950-800 Put Vert spread, cost about 22.

Then added a Sept 30 1125 Call long 36 , Aug 20 1120 Call short 29.60 Calendar Spread, cost 6.40 (if quotes are right). It looks much better in Hoadley.

Will be profit at 1150 or lower on Aug 20, in fact 6,000+ gain if 1125. +500 if 1050 then, and $15,000 profit if 900. Total gain in Nov possible is $60,000, worst possible loss if mkt goes up, is $16,700.

So if if mkt goes up 7% or less a profit and big profit if drops.

What do you folks think?
 
Quote from darp:


Redeye, could be a big winner, but obvious big theta hit.
More...

Maybe, but it does not have to be. Consider doing in the opposite direction. Sell the front month and buy loads of back month. You're then buying more premium instead of event risk. The key is to be aware of skew and know why your selling and buying what you're selling and buying. (gee... doesn't that sound brilliant...lol!)
 
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