If it pays off, it could be a big winner. And, if it doesn’t work out, then we’re going to lose the entire amount of the speculation. But, we can’t cry about it because we knew of that possibility going into the trade.<\/p>\n
I recommended short-term put options on the S&P 500 ETF (SPY). My thinking was the stock market had gotten a bit too overbought. SPY was too far extended above its various moving averages. And, investor sentiment seemed a bit too exuberant.<\/p>\n
The market looked vulnerable to a swift move to the downside over the next few days.<\/p>\n
So, on Tuesday, January 21, I suggested aggressive traders could buy a small position in SPY put options that expired on Friday January 24.<\/p>\n
No Tears, Remember?<\/h2>\n
As it turned out, overbought conditions got more overbought. Investor exuberance got even more exuberant. The proverbial rubber band stretched even further. Our put options expired worthless.<\/p>\n
Then, over the weekend, the financial press reported the DeepSeek AI story. Stock futures sold off hard overnight on Sunday. And, the S&P 500 fell over 100 points on Monday morning.<\/p>\n
If we had options that expired on Monday rather than Friday, the result would have been a profit rather than a loss.<\/p>\n
The market gave us a similar setup last week. While I didn’t offer a “no-tears” trade this time, I have plenty of friends and colleagues who took advantage of the market’s big bounce last Tuesday to buy another series of index put options expiring on Friday.<\/p>\n
The setup and the rationale were the same. Conditions were overbought. Investors were too bullish. The market was vulnerable to a quick decline.<\/p>\n
But, that decline didn’t happen last week. The put options owned by friends and colleagues expired worthless on Friday.<\/p>\n
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