It was a nasty day for the market as the Dow tanked nearly 300 points to close at 7,552. The nearly 4% dropped puts the Dow in a stone’s throw of testing its November low of 7,400. The Nasdaq fell below 1,500 as it dropped 63 points, or 4.15%, to finish at 1,470. The S&P 500 lost 37 points and ended the day at 789, a loss of 4.56%.
Phil Collins wasn’t lying when he said he could feel it in the air…you could feel the drop in the Dow coming last week when we tested 7,800. As such, most call options got hammered except the ones who were long gold and there was little to be excited about with the market today unless you owned some puts. Which is my next point.
You can trade options on the Dow under the Dow Jones Industrial Average Index (DJX, 75.53, down 2.97). It mirrors the Dow and the puts options were exploding today. The February 75 puts (DJXNW, $1.20, up $0.70) were up 140% from Friday’s close and opened at 88 cents. The February 74 puts (DJXNV, $0.90, up $0.60) were up 200%.
With further weakness in the Dow expected there was buying in the March 75 puts (DJXOW, $3.40, up $1.20) and the March 74 puts (DJXOV, $2.90, up $0.45) were also getting some action. I like both March positions but realize we could get a snap-back rally or bounce off the Novemeber lows. Try to get in the March 75’s for $3.50 or less and the March 74’s at $3.00 or less when trading opens on Wednesday.