Ten years ago today - March 6, 2009 - the S&P 500 bottomed at the devilish price of 666.79 and began what is now the longest bull market run ever.
For astute investors, it has been an incredible rally, offering gains of 318.4% as of Tuesday's close. For the Nasdaq, it was a whopping 498.7% surge.
That shows the power of long-term thinking in the stock market. Where else can you quadruple or even sextuple your money in a decade?
But all good things do eventually come to an end, and investors must have that in the backs of their minds right now. Investors are increasingly reluctant to pour new cash into the market.
Is the end of the bull market near?
Timing market tops and bottoms is nearly impossible, even for professional money managers, so big money is usually made riding big trends. The problem is that big trends are not always available.
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Investors are carefully watching the trade war negotiations with China, the Brexit deal, Venezuela's collapse, and the Fed's plans for more interest rate hikes. If the uncertainty ends, money could pour back into the market. But we could witness a selling spree if the economy slows down and earnings fall.
Despite the big rally this year to date, the major trend has really been flat and choppy since early 2018.
But that doesn't mean you have to stop making money in the stock market right now.
In fact, the market's ripe for one type of moneymaking strategy...
Making Money in Up and Down Markets
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Instead of stuffing your money under your mattress, one way to make money during times of high volatility and uncertainty is by trading options.
If you think the stock market is overvalued and ready to pull back, you can employ a bearish options strategy that limits your risk. If you think there is a little more upside, you can use a hedged strategy that lets you participate in the rally with built-in protection.
There are even strategies for investors who think something big is about to happen but are not sure which way it will send the market. The results of trade negotiations with China comes to mind here.
A new trade deal could send stocks rallying to new highs, but a collapse of negotiations could kick off the next bear market.
With options, you never worry about buying stocks at the peak either.
Let's look at an example with fictional stock. We'll call it Super Tech Inc. Super Tech's stock has been on a wild run lately, gaining almost 10% since the start of the year following a 50% gain the year before. But now it looks tired. Perhaps you see technical momentum indicators starting to fall, and daily trading volume has all but dried up.
That is usually the recipe for a big pullback in a stock. But you're not so sure. Its last earnings report was pretty good, and the CEO offered optimistic forward guidance. Interest rates are still low, it is about to release a new product, and the economy shows no real cracks.
Still, the stock price has gotten a bit lofty. Let's say you think that all the good news from the new product is already priced into the stock. You may love everything about Super Tech, but it's just too expensive to put any money into right now.
Instead, you can use an options strategy called a long put spread. Here, you buy a put option, which means you think the stock price will fall, and also sell another put option with a lower strike price. The money you get for selling the lower strike put partially offsets the price of buying the higher put. Your potential profit is the difference between the two strike prices less the net cost of the strategy. The maximum you can lose is the net price you paid for the options.
In this way, you can participate in the stock's potential pullback but have limited risk should the stock rally instead.
And there are even more opportunities to trade options for huge wins in the market.
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