Britain is leaving the European Union, and markets are off more than 3%.
What to do?
Tell yourself three things:
1. As a put seller, do I care?
No. The Brits will be fine; they always figure things out. It may take three to five years, but the EU will dissolve or change dramatically. Serves them right for passing regulations prohibiting people from fixing their own motorcycles (no kidding).
2. Volatile markets mean larger premiums for selling.
3. A sucker is born every minute.
Those suckers end up with the 85% of option buyers who see their option expire worthless.
Alright, enough with the wisdom. And enough with the gloom and doom already. The world isn’t ending—in 1987, Bloody Monday saw the market drop 23%.
What to trade?
Trade the suckers, the fearful. Trade gold, specifically, gold miners.
The Gold Miners ETF (GDX) is up more than 4% so far today. Sell a put expiring next Friday, July 1, from the $25 strike to the $26.50, depending on your view of how the market follows through next week.
If you sold the $25 put, with the ETF at $26.83, that’s 6.8% out of the money, and you collect $18 per contract.
Small beer you say? Do that 52 times a year, and you’ll collect $936, a 37.4% annualized return.
Oh… and if you sell the $26 put, you’ll collect $42 per contract, and the annualized return jumps to 84%.
Think about it.