Let's assume for the moment that you're one of these stock market gurus who just happens to be able to buy at the exact bottom of a market turn. This doesn't happen, but I want to show a method of taking profits that cuts your risk, your directional exposure, and nearly guarantees a profit.
The most recent low on the SPY was 101.13-- for the sake of the argument and this lesson, I will say that I bought 100 SPY at exactly 101.13, because I'm a genius. The question is, what do you do now? Obviously, you could take a profit, but that would eliminate further profit potential. Luckily, you can do a call conversion, where you sell your stock and convert it to calls.
Let's look at our initial risk profile:
Clearly, "Max Risk" is a little unreasonable, unless you pull a Prechter and expect the collapse of the equities market; however, it's going to be useful in a second.
So what we're going to do here is sell the stock, and buy a call. Specifically, we're going to buy the Aug 105 Call. Here's the new profile:
So what happened here? Well, you cut your risk in half (delta went from 100 to 50). You also rolled into a risk free trade, and while you have the risk of giving back all your gains, you also keep the potential for higher reward. The cash required got cut by a factor of 13, and you also get a gamma "kicker" by owning options.
If the market continues to rip and you do manage to pick up some long positions, you may want to consider this conversion as a way to manage risk in this market. After all, everyone was looking for Armageddon just 72 hours ago.