Time for the obligatory roller-coaster shot…how is thismarket’s wild ride treating you? Some folks revel in volatility, and otherswould just rather get off the ride, thank you very much. Wherever you are onthat continuum, market volatility does hit periodically – and we all need tolearn to weather it effectively.
For all you long-term investors, I’d suggest reading thispost, 3 Rules for Dealing With aWild and Crazy Market by Moneycontributor Walter Updegrave. His advice struck me as very sensible for thosewho recognize in themselves a potential panicky type. I especially liked hispointer #3, “set a cooling-off period”. Essentially he advocates making apromise to yourself that you’ll wait a set interval before pulling the triggeron a major portfolio revision. You’re hoping there that your decision seemsrational independent of your shifting moods (or the market’s). Smart,thoughtful stuff there.
What about active traders? If you know yourself to be morerisk-tolerant, your approach to market volatility might be to find trade-ableopportunities. As Warren Bufffet likes to say, it can pay to be greedy whenothers are fearful and fearful when others are greedy. If you’re more inclinedto this mindset, options can offer a variety of ways to profit in volatilemarkets – provided you educate yourself on their proper use, risk profiles, andso on. Our companion site OptionsPlaybook.com offers a great Rookie’s Corner toget you started, after which you should check out the options strategies suitablefor rookies.For instance, if you’d like to own a stock long-term but haven’t pulled thetrigger, a cash-secured put can be an interesting wayto buy in at a discounted price.
More advanced options traders should definitely check outthis Options Guy blog series on ideas for volatile times. He covers index options for hedging the markets, back spreads, and upside-down split-strikes – all handy tools forseasoned traders to keep in their arsenals as opportunistic moves duringvolatile periods.
Strap on your helmets, traders and investors! One thing iscertain: market volatility can’t last forever. The trick is figuring out yourbest way to see it through while it lasts.
CEO, TradeKing Group
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[image: Maverick by Patrick McGarvey on Flickr]
Options involve risk and are not suitable forall investors. Click here to review theCharacteristics and Risks of Standardized Options brochure before you begintrading options. Options investors may lose the entire amount of theirinvestment in a relatively short period of time.
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Multiple leg options strategies involve additionalrisks, and may result in complex tax treatments. Please consult a taxprofessional prior to implementing these strategies.
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