This information must be presented with several strong warnings.
WARNING: You must be prepared to lose all your money. This is a gamble…even if it’s an educated one.
WARNING: You could lose much more than the money you expected if you do the same stupid mistakes that were done testing this out.
WARNING: You or your broker must be comfortable with buying and selling options. If you do not understand basic options trading then you need to educate your self first.
WARNING: We can’t prove this will work properly or if you will even get a proper opportunity to do it.
WARNING: All successful results are random.
WARNING: We take no responsibility for any investing choices you make period.
Laying out the Scenario
Turning $500 into $50,000 during a major market crash requires a level head. You have to know what your moves are going to be before it actually happens or else this won’t work. That’s is why all of this is simply an educated gamble based on historic patterns. No matter how much foresight you think you have, it is no guarantee a crisis will take place during to time you believe it will happen…until it actually happens to prove you right.
The goal is to take advantage of a major market dip you foresee. It needs to be the size of something the financial world would suggest is a “crisis” or a “crash”.
Here is one way you could possibly do it
- Make sure you have a stock brokerage account that allows you to buy options, including both CALL options and PUT options.
- Find a potential situation where the DOW will drop significantly in the pattern of a Dead Cat Bounce.
- Find a popular stock with large trading volumes, that historically drops big during a financial market dip.
Warning: It’s too late to do this on the day of the market crash.
The Dow Jones Industrial Index dropped 1,000 points one day in August 2015 after dropping several hundred points in the days leading up to that one big drop. Then it bounced back up again. This is the pattern of a Dead Cat Bounce, which is exactly what you are potentially looking for.
Google is the stock we are going to take advantage of in this case example.
Google dropped from around $660.00 to nearly $580.00 in a very short period of time in August of 2015. Then the price bounced back again to over $630. The total time it took for these events to happen was literally a few days.
That is an $80 trading range that you could have taken advantage of when the stock went down as well as a $50 trading range you could have taken advantage of when the stock bounced back up again.
- Buy one (or many) PUT options with the $500 before the market actually starts dropping. Make sure you use limit orders
- Sell the PUT option(s) before it bounces back up.
- Buy one (or many) CALL options as the market bounces back up with the funds you made from selling the PUT option(s). Make sure you use limit orders
- Sell the CALL option(s) after the market price finishes bouncing back up.
Steps for the CASE STUDY
You don’t have to to do this exactly the way our test did it. If you feel you have a better way of doing things, that’s your prerogative
- Find an option of Google that expires in two or three months and has lots of buying volume.
- In our test case we are picking a sample Google option that expires at least one to three full months.
- Depending on the time of the month you buy a $5 PUT option that costs approximately $500, a one month PUT option on Google with the stock price around $660 would be around the $630 range.
- Sell the option after the stock completes its dip.
- At the end of the dip the price of Google was $580 which means that option would be worth around $55. That would leave you with around $5,500 when you sold the option.
- Buy a CALL option when the price starts to bounce back with the $5,500.
- At the end of the bounce back the price of Google went from $580 to $630.
- Depending on the time of the month you could buy 4 CALL option contracts around the $580 range for around the $13. Total cost is about $5,200
- At the end of the bounce the price of Google was $630 which means that each of the 4 option contracts would be worth around $54. That would leave you with around $5,400 X 4 contracts = $21,600 when you sold the option.
Turning $500 Into $50,000 requires a larger market crash.
If our CASE STUDY was the 2008/2009 financial crash
The amount of money you could make from executing a strategy like this depends on good you are at executing these stock option transactions and how bad the financial crash is. Our test case involved a relatively small crash where the DOW Jones plummeted over 1,000 points in a day.
If you ran the exact same scenario during the giant 2008 financial crisis you would have made much more than $21,600. It would have been at least $50,000. This is because the 2008 crash was much larger and therefore the option contracts you bought and sold would have been a lot larger too.
WARNING: You must know how to purchase call and put options in a way that limits your losses to the $500
REMEMBER: You need the buy your call options BEFORE the market starts to slide. It’s too late to do it during or after the fact.
This is the Stupid mistake we made when testing this out
It’s too late to do this on the day of the market crash. This it the stupid mistake we made. In our test, we bought a PUT option without of limit order just as the markets were dropping instead of a couple days before. What happened is the market opened 1000 points lower and what was thought to be a $400 investment turned ended up being $1,500 which was losing its value each hour as the markets started recovering. There wasn’t even $1500 in the trading account but the brokerage company allowed the trade to take place anyway. This was in spite of the fact the brokerage company had ALWAYS cancelled orders FOR YEARS without a market limit order when there was not enough funds in the account to cover the trade.
There was no arguing with our brokerage account who had often canceled orders like this in the past because of margin limits. They immediately announced the account needed to cover its margin which they magically extended to the account after years of never allowing this to happen. When I complained they went to their legal policy which all traders agree to. These agreements protects them from every possible scenario where they could possibly been accountable for. If we had bought options in a giant stock like Google instead of the smaller stock we chose, that would have cost $10,000 instead of $1500. Think about how scary that sounds.
If you are not confident in your abilities but still want to to take the gamble….
Your next option is probably to find yourself a professional brokerage account and trader that can pull off these types of market transactions. Also make sure your trading broker truly understands technical analysis… so they know exactly how a Dead Cat Bounce will behave… so they know when to buy and sell the correct options.