Yesterday’s pull-back broke the S&P’s 7-day winning streak.
The Nasdaq 100 had been pulling back the last several days but is finding some buyers today.
We’re seeing this jerky action as money is rotating in and out of some of the hot work from home stocks.
Gold and silver are firming up after yesterday’s shard pullback.
It was bound to have a shakeout like this after prices shot straight up over the last several weeks.
Big money is positioned for prices in both metals to continue their trend higher into January.
The fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX) is holding at 22.
Volatility is still elevated…
For example, the VIX was at 14 when the S&P 500 hit a new all-time high on February 19, 2020.
That means we can see these quick moves lower and then snap back higher.
On Monday, we added our newest position:
- Buy-To-Open Snap Inc. COM (NYSE: SNAP) Aug 28, 2020, $23.50 call (SNAP200828C00023500) up to $0.68 per contract or better, for the day.
Right now, we’re holding:
- Nordic Amer Tankers (NYSE: NAT) Oct. 16, 2020, $5 call (NAT201016C00005000)
- China Mobile LTD ADR (NYSE: CHL) Aug. 21, 2020, $40 call (CHL200821C00040000)
- Box Inc. (NYSE: BOX) Aug. 21, 2020, $20 call (BOX200821C00020000)
- Cameco Corp. (NYSE: CCJ) Sept. 18, 2020, $12 call (CCJ200918C00012000)
- Buy-To-Open Snap Inc. COM (NYSE: SNAP) Aug 28, 2020, $23.50 call (SNAP200828C00023500)
It’s frustrating to see the market rip higher today and we’re not able to lock in any profits.
The only thing we can do is keep focused and let the market come to us.
And I’ll be keeping you updated every step of the way.
Your Questions, Answered!
The mailbag is full, so let’s get to your most pressing questions.
“Can you explain how options pricing works? I’m a little confused about why it’s different than the price of the stock. Benjamin H.”
The price of our options is closely tied to the underlying stock price.
There are three big factors that help determine options pricing.
The first is the time value, which is the part of the option’s price determined by how long the option has until it expires.
Time value is straightforward — the more time there is until expiration, the more time value an option will have.
The options we choose typically expire in 3 to 4 weeks… or closed out for profits sooner than that.
The short time frame is a benefit to our risk and reward.
That is because it makes the options, we buy cheaper to buy than options with several months or more until expiration.
The short-term options allow us to capture upside momentum moves in with limited capital at risk.
This brings us to the second factor in pricing options — intrinsic value.
Intrinsic value is the difference between the strike price and the current stock price.
Last week, I discussed this when I answered Alan M's question, which would be good to review.
But higher the stock’s current price is from your strike price, the more valuable your option will be.
This plays a key role in what makes our approach a profitable strategy.
The options I recommend are projected to dramatically increase in intrinsic value, thanks to momentum moves identified by our Hot Money tracker.
This allows you to buy into positions that are relatively inexpensive and then sell them for gains once the intrinsic value starts to move higher.
Even a subtle move in the stock’s price could lead to a dramatic spike in the value of our options.
Now the last important factor in options pricing deals with implied volatility (IV).
Implied volatility is the market’s expectations for the future price range.
Implied volatility is dynamic and fluctuates according to supply and demand in the market.
Often, when the Hot Money Tracker finds someone positioning for a big move, the implied volatility will increase.
That is because they are aggressively demanding those contracts and supply needs to meet that demand.
Once the buying subsided, the implied volatility will settle back in.
But when we get a quick move in the stock, implied volatility will pop higher, which is the recipe for fast triple-digit gains!
That’s exactly what makes our strategy so successful and exciting.
That’s it for me today, be on the lookout for our next profit alert!
If you want your questions answered next week, make sure you email it in today at [email protected]
Talk with you on Friday.
Joshua M. Belanger