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If you've been profiting on the market's historic 40% rebound since March, you may have looked at Thursday's 7% plunge as derailing your gravy train.
However, nothing could be further from the truth.
While your call options did not fare well that day, there is no need to panic. What you should do is change your strategy for a little while until the market finds its footings.
What that means is making one small change so that you can profit when the market falls. You can even do it using options on the Robinhood platform you are already using.
It's not a big secret, either. Instead of bullish trades using call options, you make bearish trades by buying put options. The same principle applies for any other trade: buy low and sell high.
In fact, we made over 300% gains on a bearish trade on Marathon Oil Corp. (NYSE: MRO) as markets tumbled in March.
And Money Morning Quantitative Specialist Chris Johnson found another bearish opportunity in the same sector because it is about get punished again, and by much more than the rest of the market.
Options 101: It's never been easier to learn how to trade options, especially with our free guide from top trading expert Tom Gentile. Click here to get it.
The COVID-19 pandemic not only closed businesses and curtailed physical contact with other people, but all that lack of buying, traveling, and consuming had one more giant casualty. The demand for energy, and crude oil, plummeted worse than the stock market itself did.
While the stock rally since March has helped lift some of these energy stocks higher, the downturn yesterday has investors second guessing which companies they actually want their money in. And it's not this one.
Here's how you can profit when stocks go down with an easy-to-do put options trade on Robinhood...
The Best Put Option on Robinhood Today
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Recall that fateful day of April 20, when holders of spot oil futures could not give them away, even for free. There was a glut of supply and just nowhere to store it as all facilities were full. They actually had to pay people to take the commodity off their hands. The price of the spot contract for a barrel of oil fell to -$37.63 per barrel. That's right; it went negative.
But since that time, the price for crude oil soared to $39.60 per barrel on June 10. That's nearly an $80 per barrel swing in about two months' time, so it's no wonder chart watchers called that an overbought market. Prices rallied too far, too fast, leaving it vulnerable to a correction.
Indeed, the sellers were in charge Thursday as oil fell hard with the stock market.
Here's the really exciting part for us. With stocks falling and continued low demand for energy, the overbought oil market is especially ripe for selling. Chris thinks that oil is caught up in what legendary Fed Chair Alan Greenspan called "irrational exuberance." It's going to catch plenty of investors and traders unprepared, but you don't have to run with that crowd.
There is a very simple trade you can make right now to hedge any energy stocks you still have in your portfolio or simply profit outright from oil's pending correction. Chris recommends a trade on the United States Brent Oil Fund LP (NYSEArca: BNO), which tracks the crude oil benchmark traded in London. The fund trades here at home just like a stock on the New York Stock Exchange, so it should be quite familiar.
However, selling any security short is risky business, so he recommends a put option trade on BNO instead.
Specifically, he likes the BNO July 17, 2020 $10 put (BNO200717P00010000). His downside target for BNO itself is $9 and the fund is trading at $10.26 today. If Chris is right, then you could make a nice little profit. The contract currently trades for $28, but if the stock plunges to $9 in the next few weeks you could see a gain of 100% or more.
But Chris is hard at work finding even more trading opportunities, no matter which direction the markets head next. In fact, we have an exclusive invitation for Money Morning readers.
Learn how you could capture 52% gains, 78% gains, and even 108% gains in a matter of days, right here.