What should you do when the stock market crashes?
A handful of weeks ago the United States shut down various cities, market places, and several businesses because of COVID-19.
As a result of that, the stock market began to crash.
First, you need to close out all of your bullish trades. If you own stocks, you either want to hedge them with put options or sell them.
With mutual funds, you want to move into a cash position.
Any trade that is bullish in its structure, so call options, even spread trades, you want to close down if you believe the market is about to crash.
However, there is something called the TZA.
What is TZA? It is a leveraged inverse exchange-traded fund (ETF). It goes way up when the stock market goes down.
TZA is called small-cap bear 3X shares. The TZA stock went from $37 per share to well over $100 between February and March.
During that same period of time, the stock market started to dive downwards.
What exactly is a leveraged inverse exchange-traded fund? It uses future contracts and options to create leverage where people benefit if the stock market goes falls.
So, if the market is tanking, take a deep breath, close out your bullish trades, and buy TZA.
Are there options on TZA?
Yes! So, when the trend of the market is headed downward, you can buy options on TZA as a hedge to your portfolio.
There is always a trade structure that fits to make money in the market whether it goes up, down, or sideways.
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