Put up or shut up

OK so every investment advisor says they can help you make money in any market, up, down or sideways. Right? Well come on bring it.
What's that sound?
Sounds like nuthin'
Nothing is working in this market right? Nobody is making money right?
Of course you know what's coming.
Yes there are ways to make money in this market and I'm going to tell you how I'm doing it. It's not for everyone but it does work. If you decide to use any of these strategies, do your homework, and learn everything you can before trying these.
Here's the key; don't get cocky. Cause there will come the day when it stops working. But let us start at the beginning.
There are three good tools that I am using right now. Here is the first.
Until the trend is broken; I am buying puts and calls on the diamonds and spiders. When the Dow rallies like it did yesterday, I will move in and buy puts on DIA and SPY. These are ETFs that follow the moves of the Dow Jones industrial average and Standard and Poors.
Puts are options contracts that bet on a downward move in the underlying security(I am betting the Dow and S and P are gonna fall).
When they do fall, which has been the trend, I wait until the drop exceeds the rebound, which again has been the trend, I sell my puts and buy calls. The call side is the tough side and where you can get caught. Listen carefully here. TAKE PROFITS. Any profits and get out, Then start over again with the puts.
Here is what is going to happen. One day the rally is going to be real, and you will lose on the put side. It is going to happen. Whether it's today, tomorrow or five years from now I don't know and I don't care. The trick is to NEVER get cocky and increase the amount of money you commit to this trade. Let's say you put a thousand into this strategy. Then stick with it. I know this sounds superstitious but as soon as you say to yourself "This works so well I'm going to put 5 thousand into this and really make a killing" That's when the market is going to turn around and punch you right in the freakin' nose. Mark my words.
This is known as channel trading and it involves the use of charting techniques. Do your education thing on this one, it's worth it.
Strategy two. This is a variation on the same strategy above. It is a much more conservative strategy and you will have to do some more studying on your own to understand it. But here it is in a nutshell. It's a Bear credit spread. This is a nuts and bolts trade that is designed to bring in consistent revenue. It is simple really, but it sounds complicated. If you think a stock is NOT going up, You write(sell) an "at or near the money" call option and buy a further out of the money call for protection in case it does go up. The result is a net credit because the call you sell is worth more than the one you buy. Expect about 50 to 200 bucks per spread after commissions. The nice part about this trade is that you have two directions on your side. If the stock moves down you win, if the stock moves sideways you win, however if the stock goes up you will have to unwind the trade quickly(buy back the call and sell the further out of the money call), so it does require your time and attention. Again do your own research and understand this trade fully before you try it. Your on-line broker will have tutorials to teach you all about this trade but it is safe if you pay attention.
The third and last trade is simply covered call writing and since I have already written about that (See Covered calls dated 9/7/08), I will only say that down markets are perfect markets for this trade. Even if you do get caught and are forced to sell, you will most likely be given an opportunity to get back into your stock on the cheap.
You can use these strategies and make some income or you can sit on the sidelines and wait out this screwy market. It is, as always, up to you. Good luck and Godspeed.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.