This year, markets have been volatile. Stocks tumbled into bear-market territory and hit many people’s brokerage accounts in the process.
And many people are worried about the future, with inflation fears and interest rate hikes still on the horizon.
But I’ve been through this – and worse – before.
In fact, early in my career, I lived through the worst crash in U.S. history: Black Monday.
I’m happy to say that we’ll never see a day like Black Monday again.
But that doesn’t mean we can’t learn something from it for our current environment… especially given what I see coming…
The Worst Crash
As a reminder, Black Monday is when the Dow closed down almost 22% on October 19, 1987. It was the largest one-day drop in its history.
There was so much volume in the market that computer trading systems got overwhelmed and shut down. The entire market stopped for hours at a time. Traders left the floor and wandered the streets without a clue of what to do.
It was complete pandemonium.
Of course, hindsight is 20/20. But we all should’ve seen that crash coming…
During the entire month of July 1987, the market only had one down day. It just kept going higher and higher. Euphoria was setting in.
It was a classic overextended condition. But most folks didn’t recognize it at the time.
Then, out of nowhere, it became a little more volatile in August.
It didn’t seem like much to worry about at the time. The market was still up about 25% on the year.
But then September brought even more volatility.
And by October, leading up to the crash, volatility was ramping up…
An Especially Volatile Day
The Friday before the crash, the market got crushed and finished near the lows.
By Monday morning, it was a total crash… Completely nuts.
Back then, I was trading at Fossett Trading Company for a guy named Steve Fossett, who was an unbelievable investor.
On the trading floor, I was short six put options and six call options. At the time, that was a big position for me. And the market just kept going down…
I initially sold the puts at $6 and the calls at $6.
I wound up buying back the puts at $60… a loss of $54 per contract.
When the market goes down, call options tend to go down, too. But since it was so volatile, call option premiums actually rose.
With all the volatility, these calls went to $50. If I’d bought them back at that level, I would’ve been crushed.
But I told Fossett I didn’t want to buy the options back because it was just ridiculous, considering the action that day…
I got away with it.
And I’m glad I did.
The market went up 500 points the Tuesday after the crash.
The calls I sold for $6 went from a massive loss of $50… to $1 per contract.
I’m lucky I got to hang on. It would’ve blown the account to zero if I had been forced to cover those calls at $50 the day before.
The market inefficiencies were just complete mayhem. No one knew how to react…
There was a period when all trading activity stopped.
When the afternoon rolled around, more people were outside the exchange than inside. People were freaking out and walking around aimlessly.
There was no market. The exchanges weren’t functioning. If you wanted to sell a stock, you couldn’t. The system crashed. The game was over… the market was closed.
So, we stopped working in the middle of the day.
Then on Tuesday, the market opened, and investors got robbed. Stocks opened significantly higher than where they closed and came almost all the way back to Friday’s lows.
Why We’ll Never See Black Monday Again
The good news is, these days, I don’t think an event like Black Monday would be allowed to happen.
With the circuit breakers we have now, it’s nearly impossible.
The Federal Reserve just steps in and accommodates. The market automatically closes if things fall too far.
There would be panic, but now there are safeguards to that panic. If you stop the market from trading, people go home and clear their heads.
Drastic behavior just wouldn’t continue the way it used to.
After all, I believe in the mantra that “the market never does the same thing twice.”
But the market can still experience massive shocks, and with the current market volatility, I see one happening soon.
That’s why I’m preparing an I’d like to invite you to attend my upcoming briefing on Wednesday, September 7, at 8 p.m. ET for readers about a market event guaranteed to occur just days from now.
We’re coming up on another volatile period… and a massive shock in one of the market’s largest exchanges.
Unfortunately, most people will be caught off guard.
But as we speak, the biggest players on Wall Street are preparing for it.
And next week, I will show everyone how to do the same.
I believe this future shock could help put everyday folks “back in the black” for the year if they’re prepared.
So I’d like to invite you to attend my upcoming briefing on Wednesday, September 7, at 8 p.m. ET. I don’t want any of my readers to get caught off guard.
There, I’ll share exactly what’s coming… and the single ticker that could help us flip this situation to our advantage.
Go right here to secure your spot.
Editor, The Opportunistic Trader