In The Money: Bear Market Strategy: The Simple Options Strategy to Trade the Bear and Win by Heather Cullen

In The Money: Bear Market Strategy: The Simple Options Strategy to Trade the Bear and Win by Heather Cullen

CHAPTER 1. THE NATURE OF THE BEAST
When I started writing this book the first line of Tolstoy’s Anna Karenina
kept coming into my mind:
Happy families are all alike; every unhappy family is unhappy
in its own way.
I wondered why, until I realized how appropriate it was for the stock
market, and that it could be paraphrased for just this situation:
Bull markets are much the same; every bear market is
different in its own way.
Which, of course, explains why writing the first book of In The Money,
which was about a bull market strategy, was so much easier than writing
this book which is about a strategy that will work in a bear market. Bull
markets are typically long and slow affairs, and relatively predictable. Bear
markets vary wildly in suddenness, speed, depth, and length. There isn’t
such a thing as a ‘typical’ bear market. It's as though when the market is
healthy it’s a bull market and when it is sick then it's a bear market.
To continue the medical analogy, it’s easy to describe a healthy person; we
can define their temperature, blood pressure, blood counts and so on. We
know what is ‘normal’. But how can we describe a sick person? Apart from
saying that they are ‘not healthy’, there is not much that we can say unless
we know why they are sick and what they are suffering from. A person
with, say, leprosy is going to be sick in a quite different way to someone
who has appendicitis. And naturally, the treatments will differ. You
wouldn’t hope to make someone with appendicitis better by removing their
gall bladder.
This is so obvious we don’t even think about it, it is just common sense. But
in the stock market, traders and investors tend to think that a bear market is
a bull market, just upside down! They then often assume that if you just flip
the bull market strategy on its head it will work in a bear market. That
would be nice, but unfortunately, backtesting has shown that this doesn’t
work. You need a different strategy, which is what this book will show you.
Bulls And Bears
Just as we can describe a ‘well’ person, we can easily describe a bull
market. We all know what looks ‘normal’ and is (relatively) easy to trade. It
is when there is a sudden collapse in prices that we realize the market is
‘sick’, but what we don’t know is in what way it is sick, how severe the
sickness is and how long it is going to last.
Bear markets can be sudden, and they are usually unpredictable. Bear
market traders do not have the luxury of time as they do in a bull market.
There is a lot of information to process in a short time: historical charts, Fed
announcements, economic data, company reporting, commentary and so on.
In the sudden dramatic drops, like the Covid drop of 2020, trader decisions
tend more often to be ‘seat of the pants’ affairs rather than cool, considered
assessments.
Bear trades tend to be very short-term trades when compared with the ITM
bull strategy simply because bear markets move faster and are more
unpredictable. Remember the saying:
Bulls take the stairs; bears jump out of the window.
In some bear markets, like the Covid bear, the price drop from top to
bottom, while large, lasted less than a month; that isn’t enough time for a
long-term trade.
My goal in writing this book was to take my own way of trading a bear
market and distil it to a few simple, easy to follow rules, This,
unfortunately, was not as easy as it had seemed as I, like other traders, made
some snap decisions instead of following the rules.
However, after many days of poring over charts and data and testing many
strategies and variations, I did manage to capture it into a few simple rules.
When I backtested the strategy and checked how it had performed over the
last 29 years since SPY started, I was totally blown away by the results.
They were so good I couldn’t believe it, so much so that I backtested 4
times. Each time I started the backtest cleanly from scratch, following the

In The Money: Bear Market Strategy: The Simple Options Strategy to Trade the Bear and Win by Heather Cullen