I received the following quote today and immediately thought of the stock market.
The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd; indeed in view of the silliness of the majority of mankind, a widespread belief is more likely to be foolish than sensible.
— Bertrand Russell, Marriage and Morals (1929) ch. 5
There is so much “silliness” in the markets today. The market drops on worries about Europe debt and then rallies on a possible resolution. A look at the fundamentals of companies reporting earnings shows that many are raving buys. A look at the charts say those same stocks are a short-term trade, buy at the bottom and sell at the top. These opportunities come and go pretty fast.
With options those opportunities can be slowed or “smoothed”. Using options, stock ownership can be maintained while you profit from these silly swings of market opinions. It is a widespread belief that options are risky and yet they were created to reduce risk and can be used to eliminate risk. Every time the market drops I’m generating cash that can be used to buy equities at their reduced prices.