Market comments 20220518

I must say, it's pretty fascinating to witness the mess the market is in. I wonder how can the value of the 500 largest companies in the US stock market lose nearly 4% of its value in a matter of hours.

And this is not the end of it for sure.

I don't mind the decline as long as it's not a crazy crash like the GFC and the Covid.

Why?

Because we can profit from a gradual decline but a crash can wipe out anyone.

So what's my trade for today?

I could not resist to stand under a falling knife and sold a naked put against #GM (#GeneralMotors). In the beginning of the year this stock was trading over $67 and today it closed below $36. I took my chances with a $32 put, which is about 50% lower compared to the peak.

Can it go lower?

Absolutely! If we take a look at the monthly chart (below), we can see that in a couple of instances over the past 10 years it went as low as $20.

So why did I still believe that it was a good idea to sell a $32 put?

Because there is a major support line around $33 so I am hopeful that this crazy drop will stop before it reaches $32. According to sophisticated statistics, I have a 78% chance of profiting from this trade.