Trading in a bear market can present volatile market swings and really hurt if you continually fight the downward trend. This is especially important if you have a long stock position in a 401K or IRA account. You should consider opening up a cash or margin account to offset some of the risk of being solely long stock and mutual funds in your tax-deferred accounts.

You can trade bearish positions within your cash account that are still premium-selling, theta-collecting trades. You will also want to ensure that the trades you are placing are High Probability Trades, meaning when we place the trade, we have a probability of success of 65%-75%. You also want to make sure you are trading in very liquid products, namely Exchange Traded Funds (ETFs). Finally, remember to give yourself some time to let these positions work for you, namely 4-10 weeks prior to expiration.

Taking into account all the criteria listed above, let's find a bearish high probability trade. Let's take a look at one in the DIA in terms of our criteria:

DIA December 102/100 bearish put spread, paying $1.40

Products (ETFs): DIA
Time to Expiration: 50 days
Probability of Success: 70%
Market Bias: Bearish

Probability of Success = Max Loss / Strike Width

Max Loss: $140.00 per one spread
Max Profit: $60.00 per one spread
Break Even: $100.60

With the DIA currently at $89.15, it would take a rally of over 12.8% in the DIA within 50 days in order to lose money on this trade. Remember, this is a bearish position that will pay a return of 42% if the DIA stays below $100.00 by expiration.

thinkorswim, Inc. and its registered employee, Joe Kinahan, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.