Your humble blogger now sits chastised and even more humbled. My post on Tuesday, Aug. 31, noted that the S&P 500 stock index had tumbled about 7 percent over the previous three weeks. I then posed the question to our investing readers whether you thought this was the beginning of yet another market correction. If you thought it was, what might your short-term strategy be? Well, you certainly saw what happened the next day: The Dow rocketed more than 250 points on mixed economic news, and the S&P gained nearly 3 percent — recovering a very nice chunk of the “swoon’s” losses, thank-you-very-much.
And how did your humble blogger respond to this “contrarian” development? Convinced that Wednesday’s surge was just a blip in the midst of a correction, I stuck a toe into the icy waters of market speculation that afternoon and bought just one put-option contract on what’s known as a “spider,” the SPDR S&P 500 ETF (NYSE: SPY). It’s an exchange-traded fund that tracks the movement of the S&P 500 index, and my contract would gain value if the index fell. So sure was I that the market would give up Wednesday’s silly gains and trend back down, if not plummet, I even thought I might make a small profit before that day’s market close at 4:00. Well, stocks kept moving higher the rest of the day, so I bided my time until Thursday, Sept. 2. Surely, traders would come to their senses. Right? But by 1:00, it became clear that wasn’t going to happen, at least not right away. The S&P was up more than 3 points for the day and the Nasdaq much more, while the Dow was flat. Smart traders always know to cut their losses — even misguided sometime-speculators like me. Since this was a contract that expires at market close Friday and its time value would erode rapidly, I decided to sell at a loss. So, here your humble blogger sits: $52 poorer but maybe a little wiser and less prone to try to speculate on market movements in the future.
