A Black Monday event is gaining mention in the media which itself could be a self-fulfilling prophecy. The contrarian in me says, "No, that's too easy." Instead look for a globally coordinated flood of liquidity which could even start by the end of today. For now, as the market is dropping our puts keep going up in value thus increasing the absolute size of our bet on further downside. The worst case scenario: A coordinated global flood of liquidity over the weekend that that is unable to prop up the market on Monday for more than an hour or two before a new leg down ensues. Although the idea of taking some money off the table diminishes full participation in such a bona fide Black Monday event, it would still leave a sizable bet on the table for a worst case scenario. That suggests a strategy for our portfolio positions in which some deep-in-the-money options be exchanged in part for out-of-the money options (on the same stock) and part left in cash. I have lived through three major market crashes, down 22% on Black Monday 1987, down 80% in the dot.com collapse of 2000-2002, down 50% in the financial crash of 2008. In retrospect, none of these were the catastrophes they seemed at the time. They were opportunities masked by the panic. These don't come around all that often and for some of us aging baby boomers, this may be the last one. Let's make it count.
