Hey traders,
Yesterday, we witnessed a historic move — the Dow shot up by 1,300 points at the open. That’s the kind of action that can get anyone’s attention.
But here’s the thing: just because stocks shoot up doesn’t mean they’ll stay there.
Big news can send prices soaring, but it doesn’t guarantee they’ll stay at those highs. And after a jump like that, we might just see a pullback as people start taking profits off the table.
So, what can you do to lock in gains and protect yourself if the market decides to take a breather?
Sell a Covered Call
If you’ve got stocks that have run up with this rally, consider selling a covered call. It’s a simple move. For every 100 shares you own, you can sell one call option.
Why do this? Because that premium you get from selling the call lowers your cost basis, giving you a bit of a cushion if the market pulls back.
Take It a Step Further with a Protective Put
If you’re worried about a bigger drop, you can take some of the cash from that covered call and buy a protective put.
This put acts like insurance — if the stock starts falling, the value of your put will go up, potentially offsetting your losses.
Even if you don’t sell a covered call, buying a put can be a good way to hedge.
Just make sure the strike price of the put is close to the current price of the stock. It’s a move that might cost a little, but if the market does dip, it could end up saving you a lot.
Prepare for the Pullback
Look, I’m not here to predict doom and gloom, but I’ve been around long enough to know that when a hundred-billion-dollar company jumps 10% in a day, it’s usually too much, too fast.
The market’s riding a wave right now, but that euphoria doesn’t last forever. When things settle, profit-taking is bound to happen. And that’s when a pullback can hit.
So, don’t let the excitement of a big rally blind you. Be smart, take steps to protect your portfolio, and don’t be surprised if we see some red in the near future.
UPDATE: I talked some more about this the following day. And then went to the charts to show you even more a few days after that.
Happy Trading,
Jack Carter
P.S. Speaking of big jumps, Wall Street just poured nearly $7 million into one stock that could soon soar. Get the ticker — and all the details — by clicking here!
