Stock Market Crash Or Rally? Plan For Both

What Should You Do This Week?

Write the plan now, on a calm night, for every position you care about. Three lines each.

1. What you buy at −10% and −20%. Take Nvidia, about $200 at Wednesday’s close. Ten percent lower is $180; twenty percent lower is $160. You can place limit orders at those prices. Or, if you’d want the stock there anyway, you can sell cash-secured puts and get paid to wait:

• A $180 put expiring Feb. 19, 2027, about three and a half months out, paid about $8.25 a share at Wednesday’s close (midpoint of the bid and ask), an effective entry near $172. Per contract you set aside $18,000 and collect about $825.

• A $160 put with the same expiry paid about $3.88, an effective entry near $156.

The risk: if Nvidia falls to $130, you still buy at your strike, and you’ll be sitting on a loss on day one. That’s why the size of each rung should be an amount you could hold through a further 30% fall.

2. What you trim at +20%. Pick the number before the rally does it for you. Centene closed Tuesday at $67.48; 20% above that is about $81, about 6.5% above Wednesday’s close. Put a limit sell for part of the position there, or trim back to your target weight if Wednesday already pushed it over. The risk: if a health-care deal comes early in the debt-limit talks, you sold some upside.

3. Which losers you sell before Dec. 31. A down year in a stock you’ve given up on is worth something at tax time. Over the 12 months to Wednesday’s close, Oracle is down 49%, Coinbase 51%, Robinhood 36%, Strategy 42% and Nike 32%. Selling a losing position in a taxable account books a loss that can offset gains, plus up to $3,000 a year of ordinary income ($1,500 if married filing separately), with the rest carried forward. Mind the wash-sale rule: if you buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed for now. Wait 31 days or move into something genuinely different. Dec. 31 is a Thursday; the trade has to be done by then. The risk: the stock rebounds while you’re out of it.

This is education, not personal advice; options aren’t right for every account, and taxes depend on your situation.

What’s The Bigger Idea?

We call it Fear is a planning mistake. If a 14% drop in one day makes you want to sell, the position was too big, or you never decided in advance what you’d do at that price. The fix isn’t nerve. It’s paper: a written price for every action, set before you need it. Then a crash is a list of orders, and a rally is a list of trims.

How Does It End?

Usually better than it feels. Since 1985, about two in three Nasdaq Composite corrections stopped short of a 20% bear market, and after the index first closed in a correction, its median return over the next 12 months was about +24% (our count from index closes). This time the Composite itself stopped about 9% below its peak; only the Nasdaq 100 crossed into a correction. After the last 11 midterms, the S&P 500 was higher a year later every time. One in three isn’t zero, though. That’s what the −20% rung is for.

Write three lines per position tonight. A buy price at −10% and −20% (limit order or cash-secured put), a trim price at +20%, and a tax-loss list to act on before Dec. 31, minding the 30-day wash-sale window. This week’s split market, power down 9-14% while Centene and HCA rose 10-13%, is exactly when a plan beats a prediction.

What Should You Ask Next?

Follow this story with us: we’ll check these prices at Friday’s close and again at year end, and tell you which rungs were hit.

Is Your Plan Written Down Yet?

Elections change the odds, not your plan. If you have $1 million or more invested, see what Tuesday means for your portfolio in a free 15-minute call with a Trefis partner firm.

For questions about this article or underlying research, email help@trefis.com.