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Never in my lifetime could I have imagined an event like this.
Just a few months ago, COVID-19 hadn't even been named. It was simply considered a different strain of the flu. Today, it's a worldwide pandemic that has taken over the globe, eclipsing tragedies and disasters like 9/11 and the financial crisis of 2008.
Based on the numbers coming from the Centers for Disease Control and Prevention (CDC), this pandemic should run its course by the end of July if it continues on its exponential trend.
But that's more than three months away. And already, at its lowest, the market fell 37%, breaking all the wrong kinds of records.
Trading has been halted multiple times. Stocks have seen their worst days in history. People everywhere have lost a ton of money.
Yesterday's bounce was welcome – but we're not in the clear. If the CDC has anything to say about it, we're just getting started. We could be dropped into a recession any day now, and the panic is evident in the up-and-down movement of the market.
The word "recession" is scary. But it's not the end of the world – not even close. In fact, you could come out of it even stronger than you were before.
See, the stock market is typically two to three months ahead of everything else. If the pandemic lasts through July, then I expect the market's bottom to hit by the end of April.
- Risk less by using options in place of stocks. At the start of this year, I had about 50% of my money invested in stocks and options. Last month, I bumped my cash position up to 75%. In the last two weeks, I have let options expire, sold off the few long-term holdings I had left over, and am now nearly 90% in cash and 10% in stocks and options.
- Find what's going up in a down market. In March, this consisted of bonds, the eurodollar, and gold. In April, I think it's going to be the U.S. dollar, and believe it or not, natural gas.
- Exploit volatility. This will continue to be most important now. This means reducing risk with options spreads and getting breakevens closer to the market. Just keep in mind that bid/ask spreads will continue to widen as volatility rises.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.