Cash is a position. I know it's been said before, but if this market has you sick to your stomach with the thrill ride moves, there is nothing wrong with sitting it out for a week or two and then reassessing.
There's a chance you'll miss a "V" recovery for certain, but you may also sleep much better. If cash isn't a play for you, then consider defining your risk. If potential capital gains taxes aren't a worry, then I would consider call spreads.
Again, these limit upside, but with the volatility index (VIX) plus the implied volatility on many stocks elevated, the premiums on options are richer than most have grown accustomed to trading recently.
The use of call spreads will help mitigate some of that rich premium. It could allow a trader to grab a call slightly in the money and sell an out of the money call against it for the same net premium as having to go at or out of the money uncovered. Again, you are sacrificing upside, but I believe it is the better risk-managed play in the environment.
Another approach is to collar your position. Determine what downside is acceptable for you. How much can a stock fall before you will lose a lot of sleep and pace through the night? Take a look at buying a put around those levels, then sell an out of the money call against your shares to fund part or all of the cost of the put.
Again, you will limit upside, but you will also define downside. As we get closer to expiration, you can always roll the collars. Furthermore, if we do drop again, you can always buy back the short call for a gain, then look to re-adjust later. Of course, more can happen and you have other options, but this is just an idea to handle this market.
One last approach I would consider here is cash-backed risk reversals on a name you would absolutely be alright buying lower.
This is where you sell a naked put and use the premium to buy a call. Usually, these are both out-of-the-money positions. This is a bullish play. Flip the scrip, sell a call to finance a put and you have a bearish play.
One is a synthetic long and the other a synthetic short. Perhaps Action Alerts PLUS portfolio name Twitter (TWTR) interests you, since it is one of the most talked-about worst-performing stocks out there.
A trader might sell the December $20 put to finance a purchase of the December $30 calls. In this scenario, holding through December expiration, you aren't forced to buy the stock unless we see it close under $20. Maybe you're alright with that.
I'm not recommending that for Twitter, but in concept, this isn't a poor approach right now if you have the cash to buy a stock.
If the stock, in this case Twitter, were to bounce to $28 in the near-term, you should see the call increase in value while the put decreases, offering you a chance to get out with a gain early.
If it falls, you'll have a paper loss, but if you are cashed back and willing to buy under $20, your emotions should remain in check.
Lastly, I thought I'd toss up two beaten-down names with a chance for recovery here. Both of these are approaching previous resistance after making August bases at new lows.
Each has seen its 13- period Relative Strength Index (RSI) exit oversold territory as well as the Commodity Channel Index (CCI) do the same.
One has already seen the moving average convergence divergence (MACD) cross over bullishly, while the other appears to be ready to do the same.
Neither Ultra Petroleum (UPL) nor Keurig Green Mountain (GMCR) are going to fill your heart with warmth and fuzzies when looking at the chart, but these are potential reversals here, with 15-20% upside should the market find some footing.
As noted above, I would absolutely define my risk on either one.