S&P 500 Falls to New Yearly Low

I suppose I must add my opinion to the many that have already been given. First, I see this only as a continuation to the down trend that started back in Oct. last year. Almost a year ago now. According to Robert Prechter, the market should test the lows of 2002 at some point, which implies a lot of pain before this is over.

If I was 20 years younger, I would be continuing to add to my 401K plan by buying an indexed fund. But since my father died by the time he was my age, I don't have the appetite to put my money in long-term investments, I'd rather enjoy my money now while trying to make a contribution to this world. Unfortunately, the leadership in the US have no interest in making the world a better place, so I must do like Ghandi used say and "be the change that I want to see in the world". If I was holding stock or some kind of mutual fund, I would be in panic now, but my knowledge and believe in the Elliott theory, have kept me out of the markets since 2000, and I am not about to change that. Right now I may appear smart to some of view but I had plenty of agonizing days from 2003 to 2005, when I saw the markets run up without being able to take advantage of the move. I was just too fearful of the possibility to have the markets that we have now.

During that period, I struggle looking for an approach to investing in the stock market. I have no appetite for Real Estate investing, so I had to make money the only way I new how: trading options in the stock market. Yes, incredibly, I was against the conventional wisdom that options are risky. I believed then and even more strongly now that options are an instrument of risk management if done right. Implied Volatility can in fact be used to our advantage to reduce risk and maximize reward in periods when every one else is in a panic. L. McMillan has said that Implied Volatility can in fact be more predictable than stock movement. It follows that positions seeking to profit from Vega or Delta profits or both, should be OK in any market condition.

I understood this by 2005 as I implemented my PCCRC strategies. Following my instincts at first, and my progressively acquired knowledge and experience trading option greeks, I came to the conclusion that I could trade without fear of days like yesterday. I was right. In fact my account increased moderately as a result of the increase in volatility of the financial markets. The other guys fear is my gain. Thankfully, the other guy is usually the fund manager that can only legally buy puts to stop the bleeding and when that happens volatility spikes. Perhaps I am profiting from those young people that can afford to wait 20 years to see the markets rise above current prices, in which case, I will be alright and so will they. Truly, though, I don't think in such terms because the PCCRC can also profit to the upside, and the markets efficiency in taking out the Lehman Bros. and Bear Sterns of the world, will in the end produce more profitable companies capable of adapting to the reality of the economy. It is capitalism at its finest.

I have been saying for years now that I do not trade stocks because I regard them as risky. You can probably see that now much easily. But I never thought I would say that I am concerned with my other investments which are mostly in Certificate of Deposits. As for my PCCRCs? that I can handle.

So the fall of the S&P is no big deal for me and it shouldn't be for you either. It is a good feeling not to be in panic. In fact, I have been raising cash by selling puts, as part of the management of my positions. At some point, sooner or later, the markets will rebound and a few stocks (the rare exceptions, to be sure), will come to my attention, and when others may shy away from touching the new heroes with a ten foot pole, I will be entering my regular PCCRC.

I invite you to read my earlier posts that include complete descriptions of my strategies, and many examples that were real life at the time. Alternatively, you may consider to join my private group. Simply send me an e-mail and paperprofit1@mac.com and request information. I remind you, however, that all you need to know is in this blog already.