This Market Crash Seems Like More Than A Hiccup
Look for opportunities in the eventual wreckage
(Not intended to be investment advice. I own positions in Google and Nvidia.)
A few weeks ago, stocks, especially big tech stocks connected to the AI boom, were setting record high after record high. What a difference a few weeks can make.
At the end of this past week, the Nasdaq entered correction territory (down more than 10% from its most recent peak). So what now?
First of all don’t panic. If you haven’t already bought tail risk type hedges (e.g. put options or volatility futures), now’s not the time to go heavily into them as implied volatilities have spiked. Insurance is cheap when nobody wants it, but after the quake has already begun, the cost to insure your portfolio against further losses understandably spikes.
Options especially should be approached with care these days. Higher implied volatility (meaning market makers are pricing in a much wider range of possible future outcomes) raises option prices significantly. And when that happens, even if your bet is directionally correct, you might not make money if the price doesn’t move enough in your favor (you’ll just end up losing the premium you paid).
