It’s been a rough year for the stock market. After peaking above 4,800 on January 4, the S&P 500 Index fell below 3,700 by mid-June.

Since then, it has recouped some of that loss but is still in negative territory for the year. For that reason, most people incorrectly believe that there is no money to be made in this market.

That may be so for buy & hold index investors, but most certainly is not the case for opportunistic traders. In fact, you can make a lot of money in this type of stock market if you know where to look.

Let me explain. A month ago, I opened a long put option position in industrial conglomerate 3M Company (NYSE: MMM). A put option increases in value when the price of the underlying security goes down.

I said then, “The analysts on Wall Street have difficulty valuing a company that consists of several unrelated businesses.” I also noted that 3M was in the process of divesting its struggling health care business.

At the same time, 3M was attempting to fend off a class-action lawsuit. One of its subsidiaries sold earplugs to the U.S. military that it now alleges to be defective.

What caught my attention is that MMM had rallied from below $130 to above $140 in the days leading up to the release of its fiscal 2022 Q2 results on July 26. Despite that lackluster performance and tepid guidance for the remainder of this year, the stock continued to rise above $150.

That’s when my Mayhem Trader stock screener flagged 3M as being overvalued. So, I advised my readers to buy the MMM put option that expires on September 23 at the $138 strike price for no more than $2.

Hearing Problem

For a little while, this trade was starting to look like a loser. On August 10, the day I issued that alert, MMM closed below $148. Two days later it traded above $152.

However, it didn’t take long for the company’s troubled past to catch up to it. On August 26, a federal judge ruled that 3M is liable for any damages resulting from its now bankrupt subsidiary that manufactured the allegedly defective earplugs.

3M was hoping to avoid liability for what could be an enormous sum of money. More than 230,000 lawsuits have been filed against the company. The final award could be more than one billion dollars.

In fact, it could be a lot more than that. The ten test trials that have been settled thus far cost 3M $300 million in damages plus legal fees.

That’s a lot of money, even for a company the size of 3M. Combined with its poor operating results, Wall Street decided it was time to bail out of the stock.

That day, MMM fell more than 9% to close beneath $130. At the same time, our put option skyrocketed in value to more than $12.

At my buy limit price of $2, that works out to a minimum gain of 500% in less than a month. One very happy subscriber wrote to tell me that his profit was closer to 600%!

Target Rich Environment

Of course, it isn’t every day that a stock gets hammered like that. But it does happen, especially to companies that are struggling to remain profitable while inflation soars.

On May 18, I closed out a put option trade on Dollar General (NYSE: DG) for a gain of 781% after the retail sector got crushed by poor Q2 performance. That was the day after I sold my put option on Walmart (NYSE: WMT) for a 59% return on investment.

Two days later I booked a 505% profit in The J.M. Smucker Co. (NYSE: SJM) after its second quarter results came in much worse than expected. That same day I closed out a put option on BJ’s Wholesale Club Holdings (NYSE: BJ) for a gain of 308%.

Those four trades produced a total gain of more than 1,650%. Of course, there have been some losing trades along the way.

So far this year I have closed out 26 Mayhem Trader positions for a total gain of 2,034%. That works out to an average gain per closed trade of 78%.

The average holding period for those trades was about a month. When the stock market is heading down, put options can appreciate very fast.

Of course, the stock market won’t go down forever. Sooner or later, inflation will slow down and stocks will resume their upward trajectory.

But as Fed Chair Jerome Powell suggested at the conclusion of the Jackson Hole Economic Symposium, it may take a lot longer than most people think to get there. Until that happens, owning put options may be one of the few ways to make big money in the stock market.

There are other ways to use options to your advantage in this market.

Consider my colleague Robert Rapier, one of the shrewdest options traders around. Robert can show you how to squeeze up to 18 times more income out of dividend stocks, with just a few minutes of “work” each week. Click here for details.