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I Was Long Into The Market Crash - Here's What Happened Next

Last month, the market pulled back.

How's that for an understatement!

A 10% downside move is pretty normal for the stock market, but to have it happen in a week was crazy!

I'll be the first to admit I didn't see the crash coming.

Sure, there were signs of a pullback:

  • The Fed day was aggressively faded
  • Market breadth had been weak all year
  • Stock buybacks by companies were running really hot
  • High Yield debt has been flashing warning signs

I had been a little cautious... but I was still long stocks into the crash...

... but I still came out profitable on my swing trades.

How did I manage to do it? Keep reading to find the 3 things that saved my portfolio.

Limiting Risk

Instead of being long stock and panicking on the Monday Crash, I was using an option strategy called credit spreads.

pcr-example

These spreads limit risk in a trade, so even if the stocks I played went to zero I would only be out a specific amount of money. Limiting your risk using spreads can give you an extra psychological buffer if the market sees a strong move against you.

The other major advantage with credit spreads is that you don't need the market to be in your favor the whole time, because it is a high odds position that also makes money over time. Even if I got the direction wrong, as long as it wasn't a consistently downtrending market I would be OK.

Stock Selection

As I said earlier, market breadth had been very weak.

breadth

Smallcaps had been deteriorating, commodity stocks were already in mature bear markets... it was ugly even before the market crash.

The only thing really working was high beta tech and healthcare stocks.

Using a series of proprietary screeners and real-world experience, I made sure I was in stocks that bounced aggressively after the crash.

Executions

Finally, my main advantage into profiting during a market crash was in my execution strategy.

See, many option traders put on a trade and hope for the best into options expiration.

Trading using a "set and forget" method.

In my experience, that's the worst way to trade options, especially with credit spreads.

Jack Schwager, author of Market Wizards, recently said two important at an investment conference:

Position sizing is as important as entry price

and

How you implement the trade is as important as the idea you're trading

I believe that two traders can have the exact same opinion on a stock, yet one can be profitable while the other loses.

Adding position size and scaling techniques to your execution plan will give you a massive edge over others who are looking at the same trade setup as you.

In fact, with credit spreads you are able to enter and exit the same trade many times, increasing your profits without increasing your risk.

Sounds pretty good, right?

My execution strategy allowed me to be long AAPL, FB, DIS, AMGN and GS into the market crash and still end up profitable on all the trades.

How You Can Do It Too

This past month, I held a training with some clients about how to trade credit spreads using my unique style of scaling and executions.

Here's what we covered:

  • Defining and constructing credit spreads
  • Risk and reward in credit spreads
  • Major tradoffs with this option strategy
  • Psychological drawbacks and a solution to overcome them
  • A "tranche" framework for credit spread trading
  • How to trade credit spreads in a bear market

We also went into the 6 Trading Setups I Use:

  1. Rolling Returns
  2. PB2MA
  3. PB2BO
  4. Parabolics
  5. EPS 2nd Move
  6. 3rd Std Dev LL

You have the unique opportunity to access this training.

The market looks like it's going to be volatile for a while now... while many become fearful with this kind of price action, I view it as a profitable opportunity.

If you'd like to learn how to trade credit spreads the right way, you can access the training for a limited time.

The total investment in the course is a one time payment of $99.

Act Now, because once we gather enough client feedback, we will upgrade the course and double the price.

To lock in the current price and receive all course upgrades at no additional cost, simply click the button below, enter your payment information.

Once you do that, we will email you with your username and password to access the course.

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As with all of my courses, this comes with a Risk-Free Guarantee. If, after 60 days, you find that it wasn't for you... just get in touch with me and I'll refund the full cost of the course.

With my setups the total investment of the course can be covered many times over on just a single trade. Don't miss out on this opportunity to add a new set of profitable trading setups to your arsenal.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/