The Good Thing About a Stock Market Decline
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By Jeff Clark, Editor, Market Minute
The single best income-generating strategy in the stock market got even better last week.
Selling uncovered put options on beaten-down value stocks has always been an excellent way to generate income. We get paid for simply agreeing to buy stocks we want to buy anyway at prices below where the stocks are currently trading.
We generate high income – usually monthly, but sometimes weekly – with a relatively low degree of risk.
And now, following last week’s big decline in the stock market, the amount of income we can generate is even higher, while the risk we take is even lower.
Let me explain…
It’s less risky to buy the S&P 500 near 7400 than near 7800. It’s less risky to buy the Nasdaq 100 ETF (QQQ) today at $660 per share than it was to buy it one month ago at $760.
And, since most stocks are lower today than they have been at any other time over the past few months, the risk of buying just about any stock has been reduced.
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Meanwhile, the income we can generate from selling uncovered put options has increased. That’s because the Volatility Index (VIX) is 60% higher today than it was last month.
The VIX helps to measure the premiums traders are willing to pay to buy options. As volatility increases – usually because of a broad stock market decline – traders are willing to pay more to protect their portfolios from additional downside risk. In other words, they’ll pay more to buy put options.
So, those of us who like to sell put options benefit from the increased prices.
Last week’s decline in the stock market gave us the best of both worlds for this strategy. We have lower-risk conditions in stocks, and higher premiums in put options.
This hasn’t been the case for most of 2026. Stocks have held up well this year. The buying pressure has been steady. So, most stocks have traded at rich valuations. And, the option premiums have been depressed.
Our opportunities to generate income by selling uncovered put options have been limited.
We’ve still managed to do quite well in my entry level trading service Jeff Clark Trader, where we recently generated $300 of income in less than one week by selling an uncovered put in the gold sector.
Last month, we collected $120 on an uncovered put option trade in the financial sector – which we used to pay for a speculative call option that gained 156%.
Now though, after last week’s decline, we have many more opportunities available. Stocks are cheaper, and option premiums are higher.
Traders should take advantage of the situation. I’ll be issuing a new recommendation to Jeff Clark Trader subscribers later this week.
Go right here to get in on the action.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. If you’re worried that options might be a little over your head – you’re not alone… I’ve heard that before. But I promise, my eight-part options trading master course will get you up and running quickly. I’ll be by your side every step of the way.
You can check out the first three lessons – for free – right here. |
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