Last Wednesday, at the opening bell, the New York Stock Exchange blew a gasket. At the first instant of trading, dozens of stocks, including some of the biggest on the S&P 500, went haywire – plunging and soaring in seconds. The moves tripped the NYSE’s breaker and trading halted.

They’re still not 100% sure what happened – the words “glitch” and “issue” are getting tossed around.

But the thing is it happened right in the middle of my live stream!   

And the cherry on top? RIG, one of the stocks I was playing at that very moment got hit hard… and then trading was halted.

What happened next was absolutely crazy – it made me want to swear off holding stocks altogether. Let me show you, because the truth is, there’s nothing to stop this from happening again…

This Chart Is a Nightmare Scenario

Do you see that candle in the middle there? The one that has a low of $5.00 and a high of $7.53.

That wasn’t a fluke, that actually happened.

When they halted Transocean LTD (RIG), I happened to be long and exposed on naked bullish options. And I was thinking it was the end for me.

Why did I think it was the end?

Because I’ve seen this happen before – back on May 6, 2010. You may or may not remember the day when the markets had their “Flash Crash,” when another “glitch” caused 36 minutes of market mayhem.

Within minutes, the markets crashed almost 10% before they rebounded just as violently.

And I was caught up in the mayhem. I lost my shirt that day.

The scariest thing about it was that after an investigation, the SEC and NYSE never determined what was the cause of the “Flash Crash.”

So, what was I supposed to think when the market opened yesterday and I was exposed AGAIN to a potential flash crash? Everything was going to be ok and it would smooth over?

Fortunately, when the stocks resumed trading, everything was seemingly normal.

“But what if they hadn’t been normal? This could just as easily have turned out differently – and I might have had to cough up millions to cover my options.

It makes you think twice. I think I’m done. Done owning stocks or positions in the long term.

And I’m sticking to the one thing that works: trading the VWAP and playing earnings reversals.

When you hold something overnight, you risk anything happening to your position.

If you’re long on a company’s stock, and then suddenly they announce bankruptcy or fraudulent activity, you risk losing everything.

Yesterday, I showed you the 2% rule so you could define your risk ahead of time.

The way you stick to this rule is by exiting your positions before the market closes.

Let’s take RIG’s example from today to show you exactly how much you would have lost if you would have sold naked puts like me, and the market “glitch” actually was a flash crash yesterday.

Taking today’s prices, if you sold 1000 contracts on the May 19 2023 RIG $6 Puts, you would have gotten $65 a contract, netting you an initial cash premium of $65,000.

Sounds good right?

Ok, so then let’s take yesterday’s fake crash into account.

Remember, each contract you sell represents 100 shares of stock.

If you sell puts on a stock, you want it go up and have the contract expire, allowing you to just keep the $65,000 without any hassle.

If the stock dips below $6.00, your option will be exercised at the end of the expiration date. And sometimes brokers will even exercise your options early to save their loss.

That means, if RIG did crash yesterday, it could have gone to it’s yearly lows or worse.

For our purposes, let’s say it went to $3.00 and your shares were exercised.

You would have been forced to buy 100,000 shares of RIG for $6.00 when the stock was at $3.00.

That’s $600,000 held up in your account. And if you sold it immediately you would have been looking at a $235,000 loss on your trade.

Unless, you’re a billionaire, that’s far from a 2% loss.

The only thing I’ll be doing from now on is trading the VWAP.

If I see a trade, I’m in. And then once I take my profits or my risk-defined loss, I’m out.

Before the end of the day, I am going to exit everything that I have. No ifs ands or buts about it.


Leave a Reply

Your email address will not be published.