#719 - Should You Continue To Invest In A Bear Market?

The "Daily Call" From Option Alpha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Should you continue to invest in a bear market?” I guess the simple answer to this is it depends on what you’re investing in. If you find yourself in the middle of a bear market or it seems like the risk to reward ratio doesn’t really favor a particular security or a particular category or asset class that you’re investing in, then you probably shouldn’t invest a lot of money into it. Now, I say a lot of money because I don’t think it’s a binary thing. I don’t think it’s a yes or no answer. “Do I invest in stocks? Yes or no?” I think it’s a scaled approach or a tilted approach. If you find yourself in the scenario where stocks become overpriced relative to historical norms or cape ratios or P/E ratios, then you might find yourself tilting out of stocks. Not necessarily getting out of them completely, but maybe tilting your portfolio more towards bonds.

In the world of options trading, we love bear markets because generally, it gives us more implied volatility, it gives us higher option premiums, so we like to scale into those types of markets. Does that mean that we go 100% in? No. It’s not a binary, all in or all out type of event. It means that we scale in as the market unfolds. I don’t think that you should stop trading. I don’t think that you should stop investing in bear markets or bull markets or any market for that matter. I think it’s just where you tilt and move your funds. Your money has to go someplace. It can’t always just go to cash if you’re scared. You need to invest in things that give you the highest expected payout for whatever environment that you currently find yourself in. As always, hopefully this helps out. If you guys have any other follow up questions around this topic, let us know and until next time, happy trading.