The stodgy old world of stock market investing used to take place in the hallowed halls of dusty investment houses where buying stocks was viewed as a long term deal. You bought company stocks and held onto them for decades slowly earning dividends and appreciating value. Then came the 1980s and the exploding stock market and the introduction of traders. With the introduction of personal computers in the 1990s, anyone could suddenly become a trader and the numbers of people directly investing in the stock market blossomed. Now, with cable TV replacing the quiet expertise of patrician stoke brokers like Louis Rukeyser with manic hedge fund traders like Jim Cramer you could be forgiven for thinking that long term investment went out the window and short term money making was in.

In times of high volatility, Buying deep in-the-money (ITM) options is a good way of implementing directional option trading strategies.


This is because high implied volatilities, will eventually begin to come back down to more normal volatility levels and when this happens, the at-the-money (ATM) and out-of-the-money (OTM) options are going to suffer.


Deep in-the-money (ITM) options, however will remain largely unaffected. Why you might ask? Well this is because deep ITM options have very little time value and it is the time value or extrinsic value of an option that is effected by rising or falling implied volatility.

Of course the stock market can crash but not for the reasons most often given. Investors,traders and speculators perform a valuable service. They bear risks that others are unwilling or unable to assume. As long as the majority of the market participants are directly involved in buying and selling actual shares of stocks, the result is  beneficial to a free market economy. Without stock traders, the economy would collapse.

The trend is your friend except in the end - James Quillian. 

The smartest people I know are surgeons, attorneys, pharmacists and mathematicians. Each of these individuals lost huge sums of money as a result of the last bear market. Thank goodness they all have enormous earning power, and are doing fine now concentrating on their life's work. Some have done o.k. in real estate lately. Most large amounts of money that end up being invested come from the hands of smart people. Hedge funds are full of money that was earned by smart people.

The financial markets would not work the way they do without smart people playing their role. When the news media herald the long awaited return of the individual investor, they are referring to the folks I just described. Stock market cycles are terrific instruments for transferring money from those who earned it to others with ambiguous identities. Asking where the money went after it is lost in the stock market is like asking, where did my lap go when I stood up?