A shaken market, explodes higher!

September 7, 2019

The bulls were rejuvenated this week after coming off an extended holiday weekend.

All three major indexes will close higher on this shortened trading week after reports that trade talks with China will resume in October.

The bulls were rejuvenated this week after coming off an extended holiday weekend.

All three major indexes will close higher on this shortened trading week after reports that trade talks with China will resume in October.

This news hit the wires Wednesday evening and instantly sent futures higher by 1%.

If we rewind to Aug. 1, President Trump tweeted that China wanted to renegotiate and that on Sept. 1 the U.S. would start putting a small additional tariff of 10% on the remaining $300 billion of goods and products coming from China.

This tweet sent markets into a turbulent August with knee-jerk reactions to any tweet or headline, which reminds me of shaking a bottle of Champagne.

It was uncorked on Thursday, and the pop in the S&P 500 has put the index less than 1% away from those Aug. 1 highs.

However, the Nasdaq-100 and Russell 2000 haven’t been able to claw back like the S&P 500 and are lagging.

It’s been a frustrating several weeks with markets buzzing higher and lower, but we must remind ourselves that we can't let the highs get us too high and we can't let the lows get us too low.

The fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX), continues to be around our key level of 15 — which means we will continue to see choppy markets for now.

We're on the wrong side of the move, but as we saw the last four weeks… things can change quickly.

Let’s talk about our newest positions for this week.

Portfolio Update

On Tuesday, we bought to open Corning Inc (NYSE: GLW) September 13, 2019, $27 put up to $0.65 per contract.

As I noted above, the NASDAQ 100 continues to lag, and Hot Money was taking a shot looking for prices to drop lower.

We don’t have much time, and it’s best just to let play out.

It’s a similar theme with Barrick Gold Corp (NYSE: GOLD).

Commodities are mover and shakers, and Thursday flush lower in gold and silver isn’t the move we wanted first. The good news is that gold can easily move as quickly in the other direction, and we have 42 days for things to work out for us.

Right now, we’re holding:

  • Corning Inc (NYSE: GLW) September 13, 2019, $27 put
  • Barrick Gold Corp (NYSE: GOLD) October 18, 2019, $22 call

Your Questions, Answered!

Will an ex-dividend date on a stock affect our options?

— Dennis S.

Let's cover some basics first.

The ex-dividend date, or "ex-date," is the day the stock starts trading without the value of its next dividend payment.

An investor who purchases a stock on or after its ex-dividend date is not entitled to the declared dividend — it is owned by whoever owned the stock the day before the ex-dividend date.

Because stock trades take three days to clear, the ex-dividend date usually falls two days before the record date. Investors who want to receive the dividend, therefore, need to purchase the stock before the ex-dividend date.

When dividends are paid, the stock price is reduced by the amount of the dividend so that no arbitrage opportunity exists. With that said, it is still important to know when a dividend is coming out to see if your option position is at risk.

When it comes to dividends, in-the-money (ITM) short call options are the only options that are at risk.

In some cases, the opposing party may exercise their option early to receive the dividend. Long call owners must exercise their option to own the shares before the ex-dividend date to receive the dividend.

A simple calculation can be used to determine if a short call option is at risk of early assignment or not.

If the extrinsic value of the ITM short call is less than the dividend, the option is at risk of being assigned.

However, we don’t sell short calls in Hot Money Trader, so it won’t affect us.

As always, keep sending your questions and feedback to [email protected]

My team and I will have a new trade for you on Tuesday.

To your wealth, freedom and options!

Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%