Bear market strategies

[money tree]

lets discuss strategies for profiting in a bear market. Are we even in one?

heres a few I teach:

- short index CFD for interest
- short shares & write puts (covered puts)
- short index CFD with high interest rate & long index CFD with low interest rate (eg long N225 & short NZSE)
- buy long dated puts & write short dated puts
- short LEPOs
- buy-write on high yield stocks (remember a buy-write has same risk profile as a naked put, dont try it on stocks in the stratosphere)
- write strangles when I.V is high enough

 

[greggy]

lets discuss strategies for profiting in a bear market. Are we even in one?

heres a few I teach:

- short index CFD for interest
- short shares & write puts (covered puts)
- short index CFD with high interest rate & long index CFD with low interest rate (eg long N225 & short NZSE)
- buy long dated puts & write short dated puts
- short LEPOs
- buy-write on high yield stocks (remember a buy-write has same risk profile as a naked put, dont try it on stocks in the stratosphere)

Too early to call whether we are in a bear market when we haven't had a sizeable correction thus far. Increrasing cash levels, reducing debt and waiting for opportunites that emerge have been my strategy during previous bear markets. Of course, its easier said than done.
DYOR

 

[>Apocalypto<]

lets discuss strategies for profiting in a bear market. Are we even in one?

heres a few I teach:

- short index CFD for interest
- short shares & write puts (covered puts)
- short index CFD with high interest rate & long index CFD with low interest rate (eg long N225 & short NZSE)
- buy long dated puts & write short dated puts
- short LEPOs
- buy-write on high yield stocks (remember a buy-write has same risk profile as a naked put, dont try it on stocks in the stratosphere)
- write strangles when I.V is high enough

money tree wouldn't you write calls in a falling market so you wont get exercised?

Please dont yell I know nothing about options.

 

[money tree]

A good question.

If only it was that easy. A few years ago, it was easy to write calls without cover. since then, most brokers have demanded huge premiums on top of margins to cover their risk. so now, its barely cost-effective. We can get similar risk payoffs using other methods, without huge margins.

 

[wayneL]

It would be useful to separate "trading" bear market strategies and those for investors.

Trading wise, they are numerous... from simply going short, any of the numerous option strategies, to trading volaltility.

An illustration here is the humble covered call.

To initiate a CC in a bear market as a strategy in it's own right is not the wisest thing to do.

However, for an investor who intends holding the stock anyway, and accepts the downside risk as just the ebbs and flows of long term share-holding, the CC can make a lot of sense.



Personally, being primarily a trader, my bear market approach is two pronged (and differs not from my bull market approach)

*diversify across non-correlated instruments... shares, currency futures, commodity futures. Trade these long or short as I see fit

*directional trading options... where there is a significant advantage of trading options over the underlying (depending on view, volatility considerations etc)

*market neutral volatility trading... again, when the planets line up properly

As pointed out so tactfully by my friend Crashy, I have been a bear for a long time and set myself up to trade whatever the market dishes out.

There are many ways to skin the market cat.

Cheers

 

[bongcso]

Hi there

I notice there has not been any postings to this thread for a while. Does anyone else in this forum think that the March rally might be coming to an end soon? I have been watching the Shanghai composite index(^SSEC in yahoo finance) which might be a leading indicator for the other global markets as their rally started 4 months before other markets.

Last year when the market tanked, I just watched from the sidelines. This year I have prepared some defined risk strategies to profit should the market go down again. As I mainly trade with money in my SMSF, shorting stocks and selling CFDs is not something I can do. Two strategies I plan to use are:

1) Buy put options
2) Buy inverse or bear ETFs

I have posted more details from my research on my blog (http://blog.sli-smsf.com/) if you would like more information. Would also like to hear from others who have traded using inverse ETFs before.

Christina

 

[mazzatelli]

The only inverse ETF I trade is SKF[US] options. Inverse correlation SKF//SPX is present, but asymmetric in magnitude.

EDIT: I just saw the reference to Chinese markets, sorry for being OT