Yesterday’s sudden 500 point market drop near the end of the trading day rattled a few traders.
Always remember this: Amateurs control the open. Pros control the close.
So yesterday’s market drop was in the hands of professionals. I personally think it was a lot of profit taking.
And with the market opening up +345 points today, I think it’s proof of that.
It also falls in line with my view that we’re going to end 2023 on a high note.
But regardless, if you want to buy some inexpensive downside protection in case of a sudden crash, here’s what you do: Buy a Married Put.
How To Buy A Married Put
If you’re concerned about a sudden drop on a high-flying stock you have, simply buy an at-the-money put against every 100 shares you own.
That way, if the stock price drops, you have two choices:
- you can exercise the put – with this choice, you would assign 100 shares per option contract at the strike price you bought, to the option seller. In the case of a market drop, this means you’d be able to sell the shares at a higher-than-market price, ensuring you don’t miss out on any paper gains you’ve made.
- you can sell the put option – if you’d rather keep the shares in the hopes that the stock price will recover, you can sell the put option, which should have soared in value when the stock price dropped. If you believe the stock will eventually recover, this is a good option and lets you collect some profit to blunt the drop in price.
Either way, a married put gives you some cheap downside protection in case of a sudden drop.
As I said, I personally believe we’re headed for a hot close in 2023…
But this is a good, inexpensive way to buy some peace of mind.
Trade well,
Jack Carter
P.S. Downside protection is great, but that’s playing defense. If you’re ready to start cranking out some winners, let’s start playing offense! Go check out this strategy I use nearly ever single week.
