Sunday evening thoughts

How do we trade this crap that the greedy bankers got us into? That's not fair, it wasn't just them. A special shout out goes to Greenspan, the deregulators, Bernanke and Paulson as well. Anyway, how do we trade this market?

Wait for gold to drop to support levels and write out of the money puts on GLD or GDX. If you're a covered writer then wait for the same drop and write covered calls a strike or two in the money. ETF's protect against a single company tanking for reasons unknown to us regular folks until it's too late. Other than gold and to a slightly lesser extent, silver, what can you honestly be bullish on? Gold is money. Gold is a hedge. Gold is a safe haven. If we were in caves with clubs, gold could be bartered.

We can daytrade the ultra short ETF's. We can also write way out of the money naked puts on the ultra shorts like I just did with TBT but admittedly that's a little different than the stock index ultra shorts. We can wait for bear rallies and buy index puts in abundance, keeping some as hedges and selling others for profit when the market tanks again.

We can do what I've been doing a lot of lately which is writing naked puts way (and I mean WAY) out of the money. There is so much fear out there that even several strikes out of the money the premiums are worthwhile. Hedgers and speculators are buying up puts like crazy. We can be the sellers and in doing so give ourselves ridiculous amounts of downside protection. Since we're writing so far out of the money our brokers don't demand that we put up much margin maintenance. This allows us to have great returns on margin with very little risk. Combine that with protective put buying for insurance and we are as snug as a bug in a rug.

If you're bullish on an individual stock it better be of the highest quality or it could get hammered at the slightest bit of bad news. Even better in my opinion is to trade ETF's on sectors or foreign countries that you're bullish on. My favorite foreign country ETF's right now are EWZ, which I've just traded, and FXI. For an interesting read on FXI see: http://tinyurl.com/bbgjf4. Don't be greedy. Write your puts way out of the money and your covered calls way in the money. I prefer the naked puts because of the return on margin but to each his own.

You can prove your mettle as a trader if you can make gains while all the buy and holders get slowly bled and the cash holders are arguably preserving capital. This market is a great opportunity to hone your skills. Traders who start five years from now will not have had the experience that we have. It's like learning combat skills in battle versus reading about it in a book. We will have been through the worst market in history and we not only survived but we thrived. Some traders I really admire are very frustrated right now. We can strategize our way through it.

I hope you exit this Depression wearing a top hat and tails and raising your cup in the winner's circle.