A little good news goes a long way

So last weeks gradual sell-off was arrested today by good news on the Pfizer vaccine getting FDA approval (which should allow organizations to mandate it). The hope is that by getting more people vaccinated we may be closer to getting the world back to normal. The market was up and everyone seemed relieved, but it is not all clear by any measure. We have the Jackson Hole symposium later this week (where central bankers could detail tapering plans) and that could swing the market strongly one way or the other.

Market rebounds like today, however, soothe me. On days the market is down, I sell put contracts. When we have a string of them in a row, with no up days, it means I accumulate a lot of them. Given the uncertainty of the last week, I was careful and only wrote a couple of contracts each day on the stocks I want to own. But if there are no days when the market is up, I generally can’t ‘buy to close’ any of these contracts as they generally become more negative as the market slides. Sometimes, it reaches a point where I have so many open contracts, most or all of which are negative, I have to stop writing them. While my trading platform limits how many contracts I can have open at any one time, I always like to have considerably less. By Friday of last week I was approaching my limits. When the market swings up though, I often find a good many of these contracts turn positive. I closed well over half of my outstanding contracts today and made more money today that I did all of last week.

The lesson here is patient and faith. It is hard to watch the value of your investments fall. But there is not reason to panic, the stock market generally comes back. You have to view market pullbacks as opportunities. You need to have a plan and stick to it. It is hard to trade or invest when the market is a falling, but it can be profitable. I made money on the options I wrote into last week’s falling market, the dividend stocks I bought and even on the speculative stock I am playing with. It may be erased tomorrow, but today I feel good about gritting my teeth and buying last week as the storm clouds gathered.