I believe the market is going to fall dramatically within the next 6 months.

What is the best way to short the market?

Are there any schemes out there to do it for you? Would a mutual fund like the Prudent Bear be the way to go? And would selling the prudent bear shares be a problem if/when the market crashed. Any replies would be very welcome.

thankyou

-- Al (degauss@worldnet.net), May 22, 1999

Answers

Ask your Broker about LEAPS Put Options. Put Options is where you make money when the stock on that Option goes down. Options can expire at various dates. Leaps Options expire either in january 2000 or January 2001. I have been buying the ones that expire in 2001, for the simple reason is because investors are blind as far as it comes to Y2K. If the market does not crash until January 2000, you're cutting it very close. So to play it safe get the ones that expire a year later.

I have been buying Puts on stocks that are very high priced, like IBM, because the bigger they are, the bigger they fall. My Y2K preparations are finished, so I'm putting all my extra money every month in buying more LEAPS Put positions. Once the market crashes, I will make enough money to retire on. It is an opportunity of a lifetime! To learn about Options, visit www.OptionAdvisor.com and www.OptionSource.com

The higher the Market goes, the better Put positions are available at a lower cost. The price of Puts goes down as the marker goes up. The price of Puts goes up as the market goes down. Good luck and don't procrastinate on this one. These opportunities are very rare. Don't pass it up!

-- freddie (freddie@thefreeloader.com), May 22, 1999.

Freddie, is there anyway to short the whole market, like an index such as the Russell 2000 or the S&P 500 or the DJI?

-- kozak (kozak@formerusaf.guv), May 22, 1999.

I asked this question a ways back and got a very thoughtful answer that included the "Prudent Bear Fund" (1-800-711-1848). I checked into it and found it to be attractive. Basically this Tice guy does a lot of normal shorting and put options, is long in some highly defensive stocks, and has alot of cash right now. (You might want to sell your gold stocks to balance your portfolio since he has these already.) Don't expect a pretty chart (bearx symbol) -- shorting the market to date has been an unpleasant experience. You can even buy it within an IRA. (Be careful -- this is your retirement you're playing with now.)

I just put in my first check and will keep easing in until the market responds so negatively that it is no longer a compelling idea.

Dave

-- Dave (aaa@aaa.com), May 22, 1999.

kozak, there are Put Options on most of the major market indicies. They are expensive unless you go the LEAP route. I would learn as much as possible before jumping in. Put Options do expire and if they are not in the money they are worthless.

Ray

-- Ray (ray@totacc.com), May 22, 1999.

Prudent Bear Website:

http://www.prudentbear.com/

-- Cheryl (Transplant@Oregon.com), May 22, 1999.

Hi Al,

Here's a link to a great article at the Westergaard web-site on shorting the market: http://y2ktimebomb.com/II/TK/tk9915.htm However, he leaves out a couple of options. One is using the e-mini S&P futures contract to short the market (he does mention the regular S&P futures, but it is VERY risky). Another option is to just "cash out" and wait on the sidelines. You're not actually short the market if you do this, but you don't have to risk getting clobbered if the market decides to go parabolic, which often happens at the end of a market mania when the market experiences a "blowoff". Just wait for the expected collapse, then re-invest at bargain basement prices.

This page also has tons of articles at: http://y2ktimebomb.com/II/TK/index.htm I just found it looking for the other article so I know what I'll be doing all day today! (You know I don't have a life when I get all excited about finding a bunch of new investing articles! :-) Plus it gives me a good excuse to not do yard-work.)

-- Clyde (clydeblalock@hotmail.com), May 22, 1999.

Kozak and others,

Yes, you can easily "short the whole market" or whatever part of it you wish, by "shorting" (the opposite of buying or "going long") various Index Shares. If you short DIA, you're betting against the Dow. SPY for S&P 500, MDY for mid-cap stocks, etc. Info is at:

http://options.nasdaq-amex.com/indexshares/index_shares_over.stm

these "derivative stocks" trade just like shares in an individual company.

-- doug (dclapp@uswest.net), May 22, 1999.

By the time the market is in the toilet and short-sellers will be in position to make fortunes, I rather doubt you will be able to turn your options into greenbacks. At some point, if Y2K is anything at all, surely there will be a hiatus in stock trading. My advice is to get completely out of the market now, and not to consider trading in it again until Y2K is part of the history books (say, post-2002 at least).

website: www.y2ksafeminnesota.com

-- MinnesotaSmith (y2ksafeminnesota@hotmail.com), May 22, 1999.

As I recall, the Rydex Ursa Fund shorts the S&P 500 index. I think there are a number of these "bear funds" out there.

-- Don Florence (dflorence@zianet.com), May 22, 1999.

Minnesota, you mention that when you ride the market to the bottom, you cannot cash out. You can prevent that by getting out and back in as the market tumbles and each time keep a major portion of your profits and pocket them. When it finally hits bottom and then cannot cash out, you've lost only a few hundred dollars. I'm putting about a $1000 per month into buying January 2001 Put positions. It's an opportunity of a lifetime and I'm taking advantage of it! My son is doing the same and he expects to pay off his home with the profits!

-- freddie (freddie@freeloader.com), May 22, 1999.

I would simply like to add that there really is no such thing as a "market neutral" position.

If one moves one's assets to US paper dollars (cash), one's position is that of being bullish on the US dollar. If one moves one's assets to US electronic dollars, one's position is that of being both bullish on the US dollar and confident that the global banking system will survive unscathed.

As always, diversify.

-- Nathan (nospam@all.com), May 22, 1999.

Freddie said,

Minnesota, you mention that when you ride the market to the bottom, you cannot cash out.

[this seems logical to me and would be my biggest concern]

You can prevent that by getting out and back in as the market tumbles and each time keep a major portion of your profits and pocket them.

[the problem I see here Freddie is that the market, if it crashes spectaculalrly like black Monday, might go into freefall over a period of days, down to maybe 4-5-6,000, in increments. It would only take a few trading days to bottom out, so you really wouldn't have the chance to get out. it would be likely if this happened in the USA, the markets in Tokyo and London might actually have to close, further exacerbating the mess in the New York. At what point can you "put" your Jan 2001 LEAPS to the market - I don't understand how they work - can an entity be forced to buy back these puts at any time, i.e. say in Oct/Nov '99 if things are going South?]

When it finally hits bottom and then cannot cash out, you've lost only a few hundred dollars. I'm putting about a $1000 per month into buying January 2001 Put positions. It's an opportunity of a lifetime and I'm taking advantage of it! My son is doing the same and he expects to pay off his home with the profits!

[sorta sounds like a reverse form of pyramiding - not sure how you could do it in practice though... thanks Freddie for the advice!}

-- freddie (freddie@freeloader.com), May 22, 1999.

-- Andy (2000EOD@prodigy.net), May 22, 1999.

There are investors who sell options and there are investors who buy them from the sellers. The sellers hope the options expire worthless, so they can keep the premium they made on the sale.

The option buyers take the smallest risk. They can only lose the money they invested when the option expires worthless. However, the option seller takes a very big risk and can lose an unlimited loss. However he can prevent a big loss by also buying the same options to protect and cover his losses and also ride the market all the way down. The money he makes on the options he bought, he has to use to cover his losses on the options that he sold.

However if the market goes against the seller of the options, the option buyer can place a sell order at a profit and the seller has to take money out of his bank to buy the option back at a big loss. If he can't come up with the money, he will have to sell his home or whatever to pay off his account. Off course that seldom happens, because if he is smart enough to trade options, he know he has to cover his losses and he then buys options to cover his losses.

However the option buyer gets paid right away, even though the other guy has no money. The stock exchange will take care of his problem.

-- freddie (freddie@thefreeloader.com), May 22, 1999.