Everyone seems to be asking, will the stock market crash?
David Jaffee with Beststockstrategy.com shared his insight into a potential stock market crash.
Keep reading to learn if the stock market will crash, how to outperform the market, and how to protect your portfolio.
David Jaffee does not believe the stock market will crash.
In 2022, the stock market fell around 20%, with many market leading stocks down ~50%.
As of April 19, 2023, the stock market is up around 8%, and the VIX is trading below 17 (which is very low when compared to where it's been trading over the past few years).
In David Jaffee’s opinion, the stock market is going to experience sideways action. David Jaffee does not believe that the stock market is going to crash.
David Jaffee does believe that there is significant risk for a pullback in the near-term because the S&P has increased about 8% in April 2023 and VIX is low, while VVIX has spiked up recently.
As a result, it's possible that we'll experience a ~3% pullback in the near future, with an increase in VIX.
Even so, David Jaffee anticipates does NOT anticipate a full-on, violent crash.
How to Profit in a Bear Market or Sideways Market
What can you do to profit and take advantage in a bear market or during a market pullback?
Traders can sell call options (or call credit spreads).
If they sell put options, then they should trade credit spreads to protect against tail risk.
Also, and this is extremely important, now (with VIX under 17) and after the market's recent strong performance, is a GREAT time to buy some long-term protective put options.
Remember that the market does not crash up. Instead, the market has a tendency to crash down.
If you're going to sell call spreads, it's important to sell call options further OTM than you would sell a put option. Additionally, if you’re selling calls on volatile companies like TSLA or NVDA, then David Jaffee believes that it's best to sell a call that’s ~30% OTM with a short-dated expiration of 1 to 2 weeks.
You can sell both call spreads and put spreads.
When trading options, it's important to only sell put options on high quality, liquid stocks, indices or ETFs that you perceive are oversold (or overbought if selling calls) at that specific time.
Probably the most important aspect, according to David Jaffee, is to make sure that you stay small, trade spreads and that you do not try to guess the bottom.
During a sell-off or a large volatility expansion event, the long put option leg will protect you.
Remember, in the stock market, you are rewarded for making good decisions. You are not rewarded for taking action.
As a result, if you see the stock market selling off, that doesn't necessarily mean that you should jump in and use a significant amount of your buying power immediately.
Instead, it would be more prudent to wait for the market to stabilize and to not try to guess the bottom.
Learn How to Outperform the Stock Market by Trading Options
David Jaffe with BestStockStrategy.com teaches his students how to implement the best trading strategies so that traders can learn to be profitable in all market environments.
We target a return of about 2% - 3% every month by selling options.
Option sellers who are disciplined and patient are able to achieve significant alpha during grind down bear markets and sideways markets.
David Jaffee hopes that his students and other traders are able to put these quick tips to use and utilize them to outperform the market, protect their portfolio, and also realize large profits.You can learn more about options trading from David Jaffee at BestStockStrategy.com. Sign up today to receive $400 in free options trading training materials.
Frequently Asked Questions (FAQs)
Will the stock market crash in 2023?
The stock market fell about 20% in 2022 and is up around 8% YTD (as of April 19, 2023). I do not believe that the market will crash in 2023, however it's possible that the market will trade sideways for the next few months.
Is the stock market currently (as of April 2023) overbought?
It seems that the market is currently overbought. The market is up about 8% in April 2023 and there's a divergence in volatility indicators, with the VIX trading below 17 yet the VVIX up another 8% on April 19, 2023.
While it's impossible to tell the future, it seems probable that the market will experience a short-term pullback in the near future.
What is the best way to trade in 2023?
Selling call spreads and put spreads while collecting option premium, and then using some of that premium to purchase long-dated put options on SPX when the VIX is trading below 17 is a great way to collect income while also mitigating portfolio volatility and risk in 2023.
When will the stock market crash?
Nobody knows when the stock market will crash. The best way to prepare is to "Be greedy when others are fearful and fearful when others are greedy", as Warren Buffett says.
How to make money and profit during a market crash and bear market?
The best way to make money during a market crash is to buy long-dated put options during periods of complacency when the VIX is low.
This is because options are inexpensive when the VIX is low and complacency is high.
During a crash, these same put options can often increase in value by 30x - 50x.