It sure seems like these markets can keep going up and up forever; the Dow blew right past 22,000 on Aug. 2 – its sixth consecutive record day, no less. And this comes on top of July shaking out to be the second-best month on the Street all year.
Beyond the usual crowd of permabears, you'd be hard-pressed to find too many voices calling for a correction or crash. Some of them have been calling for a crash since Election Day – Ronald Reagan's Election Day!
Still, there's a certain quiet apprehension out there among economists, big fund managers, and analysts, according to a recent CNBC Fed survey.
Now, stocks very well could go higher, 10% or maybe even more once tech gets its mojo back. But there are two very good reasons to prepare for a dip of some kind.
No. 1 is simple: It's your money, and it always makes good sense to protect it. "Prepare for a rainy day."
No. 2 is probably the most compelling reason: When markets are heading higher the way they have been, "insurance" is "on sale."
Remember, nothing goes up forever, even if it may "want" to, so let me show you the best way to do that right now.
The Power of the Put in a Stock Market Crash
There are two solid strategies you can use when the markets fall: a long put or a put debit spread. They're both extremely powerful in the event of a market crash – and they're both extremely easy to use.
Let me show you by using a case study on Clorox Co. (NYSE: CLX)…
CLX reports earnings before market open (BMO) on Thursday, Aug. 3. Judging by the last four earnings sessions and the performance of the stock over the four days prior to the announcements, CLX has traded down for an average move of 1.5% in the three of the last four quarters. That tells us that there's a greater likelihood of the stock falling again before Thursday, which is why a put or put spread are your best considerations.
Below is an example of a long put on the stock using a CLX Aug. 18, 2017, $135 put:
And this is an example of a put debit spread using a CLX Aug. 18, 2017, $135 put and a CLX Aug. 18, 2017, $130 put:
Both of these trade ideas will turn a profit when the price of the stock goes down.
But here's the difference…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.