Options: 5 Reasons to Beware of the Bear Market

Posted On October 22, 2018 2:52 pm

bear market

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October is living up to its reputation for a month when trading gets volatile and bad things happen to stock prices.

The reputation is not just based on the fact that a few of largest one-day sell-offs, or “crashes,” have occurred during the month. It rests on statistical evidence, which shows October as the most volatile month of the year.

This has been especially true since the financial crisis first flared up in October of 2007.

SPDR Stock Chart

Source: macroriskadvisors.com

Now with the S&P 500 having tumbled 8% from its high, many money managers and market observers have turned decidedly more negative.

Even long time bull JC Parets, has gone as far to say that, “In my opinion, we are in a stock market environment where a crash is entirely possible.”   

So what are some of the issues that could bring about a bear market?

Last week I wrote about the U.S. market decoupling from the rest of global markets and how it was vastly outperforming since the summer.

Initially my premise was they would converge by the rest of the world playing catch up. Instead, it appears that U.S. stocks are heading lower.  

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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