How can we prepare for a stock-market crash in 2006 without risking our shirts if we’re wrong? We spent Tuesday morning doing exactly that – lining up our ducks for the Big One that for all we know could still lie ten years down the road. The opportunity we were looking for beckoned in the first hour with the subtlety of a string of exploding firecrackers. Bulls, hopped up on whatever it was that CNBC’s market shills may have said over the weekend, quickly pushed the major averages beyond the boundary of caution. I put out a heads-up that began as follows: “The cavalcade of bozos who couldn't wait to buy this morning's opening seems to be tapering off.”

At the time, with stocks reveling in their wonted, post-holiday, first-hour frisson, you could easily have bought ten thousand QQQ January 40 puts for 0.15 apiece. Our goal was more modest – to add a dozen at that price to the sixteen we already owned. We easily filled the order and then attempted to buy 48 more for 0.10, but only a relative handful traded at that price. And now, only one more step remains to lock in a riskless bet that the stock market will fall apart early in 2006. Specifically, we must short some January puts of a lower strike for as much as we paid for the January 40 puts.

Zero Risk

This was easily possible yesterday, since the market fell like a brick not long after my “cavalcade of bozos” bulletin went out. In fact, one could have sold ten thousand of the January 39.625 puts for what we’d paid for the January 40 puts. This would have given us a 37.5-cent vertical put spread at no cost, implying that our theoretical risk would have been limited to commissions. If we had done so, effecting the QQQ Jan 40 – Jan 39.625 put spread 28 times for zero cost (i.e., doing it for “even”), we’d have on a position with the potential to produce a  $1,050 profit (28 x $37.50) and no possible loss.

Actually, our goal is more ambitious. We are looking to short January 38 puts against the January 40 puts we already own, giving us the January 40 – January 38 QQQ put spread 28 times at no cost. If we are able to short January 38 puts for 0.15 (the amount we paid for our January 40 puts), we’ll own a position that can’t possibly lose us a dime but which could produce profits of as much as $5,600 should the QQQs fall by as little as 2.7% over the next month. And that, to answer that question I posed at the outset, is how we prepare for a stock-market crash that might never come.

$37,500 Available

Incidentally, as I’ve implied above, it would have been easily possible on Tuesday to buy the January 40 – January 39.625 put spread a thousand times at no cost. That means that for the cost of commissions, one could have locked in a riskless spread with the potential to produce a trading gain of as much as $37,500 over the next 30 days. It also explains why bidding 0.10 for a hundred thousand January 40 puts would not have been nearly as risky as it sounds. To be sure, only a relatively handful of January 40 puts traded at that price. But we should always be prepared for such opportunities, since one can never predict when one or two of the aforementioned bozos will induce his or her fellow bozos and bozo-ettes to think, in a reckless moment, that selling January 40 puts for 0.10 is a source of free money. In reality, these bozos, god love ‘em, are giving us thousand-to-one odds on an outcome that is probably no worse than a 30% shot. 

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Hidden-Pivot Seminar

Over the years, many subscribers have written to ask where they could go to learn about hidden-pivots. I’m pleased to announced that I will be conducting a 1-1/2-day seminar in Denver, probably in late February. This will likely be a one-time deal, since I have no interest in getting into the trading-school business. A limited number of seats will be available on a first-come, first-served basis, with priority going to Rick’s Picks subscribers.

I haven’t settled on a date yet, but the course most likely will be held on the final weekend in February or the first weekend in March. Whatever the case, this will be an event to which you will want to bring your spouse. It will be held at the new J.W. Marriott in Denver’s ritziest commercial district. The hotel sits across the street from Cherry Creek Mall and is surrounded by great restaurants, art galleries, jewelry stores and boutiques.

This is not going to be a “how-to-get-rich” course, as most subscribers will already know, but rather an opportunity to learn in a relatively short time all of the proprietary tricks that I use to forecast hidden-pivot swing points with two decimal accuracy for all trading vehicles, in all time frames.

Here are some of the things that you can expect to learn:

• How to set up for killer opportunities in the first hour, when most traders are on the sidelines “waiting for the dust to settle.”  
• How to initiate trades in mini-futures contracts using stops of a point or less.
• How to use cheap, way-out-of-the-money options to play bullish or bearish hunches while risking only pocket change or, just as frequently, nothing at all.
• The one trick that can overcome the edge the option floor traders have over retail customers. 
• How to use "dynamic trailing stops" to manage risk when a trade is in progress.
• The juiciest trade set-up I have discovered in nearly 30 years of trading. It is a nearly infallible pattern that takes two days and one night to ripen to perfection on the 15-minute bar chart.
• How to use five- and fifteen-minute charts to read much bigger trends with precision and absolute confidence.
• How to forecast price swings far more accurately, even, than some of the most famous gurus and sophisticated trading algorithms.
• How to overcome the 95%-plus failure rate of trading-school “grads”.      

The cost of the seminar will be $1,900, including course materials, post-seminar mentoring, a hidden-pivot calculator, single-night lodgings, airport shuttle, and all meals except dinners. I will require a $200 deposit by no later than mid-January, but for now I’m interested mainly in determining how many people would attend. Class size will be limited to sixteen or less. If you’re serious about coming, please let me know soon as possible by clicking here. Also, please indicate your first-, second- and third-choice dates between mid February and late March.