Mom's indicator is flashing

We saw another panicky selloff today and I got a very clear contrarian indicator telling me it is a great time to do some bottom fishing.

I used to follow a great veteran master trader, who told us from time to time when his very reliable Mom's indicator was flashing. Here is how it works. His Mom generally does not talk with him about stocks. But from time to time, he will receive his Mom's call, asking him if it is the time to buy or sell stocks. He said it usually meant the extreme moment for the market and he could reliably either short the market if his Mom wanted to buy or buy stocks if his Mom wanted to sell. Hence called his Mom's indicator.

And today I got a similar indicator flashing: my wife's friend called her, nervously asking her to ask me whether the market would continue to fall and it was the time to sell. I immediately knew it was the time to pull the trigger. Here is what I shared with my Family, in which I was buying long term puts for VXX.

During the market turmoil like today with a good dose of panic, the best thing to do is to bet volatility will calm down quickly. Even better, VXX is a wasting asset, meaning its value is always trending down over the long term. So it is quite a safe bet to its downside as long as giving it sufficient time. 

We can then turn this into a short term income trade by selling puts against this long put when VIX is low. For now, just open this long put position. 

It also prompted me to send a note to my chat group: If you have nerves, it is the time to buy when there is plenty of blood on the Street!

Of course it is by no means I know the exact lowest point for stocks and they cannot go further down. But I'm pretty confident to say that we are at the bottom area and the downside risk should be much limited at least for the short term, even if the exact bottom has not been reached. So I'm aggressively buying today for the upside. And one low risk strategy in this very panicky situation is to sell naked puts. It will almost always be profitable as long as you give it sufficient time for the good stock that you want to own anyway at a cheaper price.