Another Bout of Irrational Exuberance

Dow above 1400, S&P inching towards record highs, NASDAQ already ahead of previous highs - looks like the bull is back! But wait a minute - did Citigroup not report a drop in profit of 60% (Yahoo Finance), did UBS AG (WSJ) report that it will write down $3.41 billion in fixed income assets due to the subprime mess, did the foreclosure rate not set a record in August, is the US economy not headed towards a recession ... the doom & gloom list goes on. But stock prices keep going thru the roof. My trading options include

Short the market - The thought has crossed my mind since there is bound to be another stock market "correction" and money could be made in the short term. Considering two trades in this space - (1) Buy Dec 07 SPY PUTs @150. These Puts are trading at $3.05 with an IV of about 18%. BE would be about 147 which is reasonable given 3 months to expiry. (2) The other trade would be going long the VIX. Buy the VIX Dec @ $20 calls trading at $2.15 with a BE of $22. Comments?

Calendar on CAT - CAT is a strong stock but was lately beaten down with the rest of the market. Has good business model and attractive valuations (plus has Cramer’s blessings) although last qtr earnings were not great. It has been fluctuating around $80. A Bull Calendar for Oct/Nov at $80 gives a P/L of $1500/$900 and a BE of $76.40 and $84.40. Oct (short) IV is 28% versus 27% for Nov (long). 3 weeks to expiry - earnings on 10/19 - exit before that with a target profit of $500. Comments?