Welcome to 2007!
The year 2007 marks the 20-year anniversary of the stock market crash of 1987. I was there for this bit of history. At the time, I was a fixed income trader for the Federal Home Loan Bank of Seattle. It was quite a two-day period from Friday through Monday. I remember how volatile the bond market was trading on Friday and Primary Dealers were not making markets on Monday.
I was curious as to whether there anything unique about years ending in seven. The January 2007 issue of Active Trader magazine has an article I wrote that looks at years ending in seven. The title of the article is “Lucky Number 7?”. You should give it a read. If you are not a subscriber, the magazine is available on newsstands.
The article details the performance of each year ending in seven including various tables and graphs providing percentage comparisons. The most amazing fact of the analysis is that at one point in 1987 the Dow Jones Industrial Average was up 40-percent. Wow! The chart shows the monthly percentage change from the end of each year ending in six for all of the years ending in seven. (Source: Active Trader Magazine January 2007)
I remember reading about stories where people were writing puts during the bull run in 1987. And, following the crash, those put option sellers were in big trouble as the puts were exercised. Therefore, here is a little rule: Do not write puts when the stock market is up 40-percent!