The buying mania continues…
And stocks are roaring higher pushing to new all-time highs!
We’ve been watching the S&P 500 and Nasdaq 100 tiptoe higher the last few weeks, which had many traders thinking we could stall out.
But one thing I keep top of mind from my days on the trading floor is this… You never want to short a dull market.
Especially during unprecedented times.
What’s got my attention is that volatility is higher on today’s rally.
The fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX) is holding at 26.
That’s four points higher than last week.
This could be because market participants are buying stocks because they must put money to work, but also buying market protection.
Typically, we see an inverse relationship when stocks are going higher and volatility decreases.
It so remarkable that my contacts who are on the professional side of the business can’t figure it out either.
We’re coming into an extended weekend with markets closed this coming Monday in observation of Labor Day.
That means you’ll receive next week’s trade on Tuesday.
On Monday, we added our newest position:
- Buy-To-Open the Energy Transfer LP Unit (NYSE: ET) Sept. 18, 2020, $6.50 call (ET200918C00006500) up to $0.20 per contract or better, for the day.
Right now, we’re holding:
- Nordic Amer Tankers (NYSE: NAT) Oct. 16, 2020, $5 call (NAT201016C00005000
- ANGI Homeservices Inc. (NASDAQ: ANGI) Sept. 18, 2020, $15 call (ANGI200918C00015000)
- Energy Transfer LP Unit (NYSE: ET) Sept. 18, 2020, $6.50 call (ET200918C00006500)
Let’s 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.
“On Monday I bought your recommended ET September options for around $0.20. I noticed the price has dropped since then. Is now a good opportunity to buy more options contracts?” - Steve N.
That's a great question to answer this week!
As an options trader, oftentimes we’ll enter a new trade only to watch it decline double digits shortly thereafter.
To some, it's discouraging and to others, they see it as an opportunity.
One of the great things about options is that they move fast.
Which is why I like to use them to generate big weekly gains!
One of the things to consider, even if the options contract declines in value is that... these are only paper losses.
And with the market trading as they are, pullbacks could be a great buying opportunity.
The challenging aspect of trading options is that there are several moving parts that dictate price.
That means it’s very easy for newer traders to get swept into the deep end of the pool.
With our approach, sometimes we are purchasing options contracts that expire in a few weeks.
That is because we are following new money bets that believe a big move is going to occur in that timeframe.
For instance, our ET September 18, 2020, $6.50 calls expire in 16 days.
Ideally, we want this move to happen in the next few days.
As more time passes, this decreases the premium we've paid.
So, for this position, I wouldn't consider buying more.
Now, that being said…
If there were five or more weeks to expiration, I would look to buy more.
Keep in mind, when buying more of these options, you’ll take on a bit more risk.
But you'll reduce the overall cost, which means that you'll want to manage your profits sooner too.
The buy and sell recommendations I send for the options I have chosen are guidelines.
You can follow them to the letter, or with a grain of salt.
Either way, know your risk tolerance, and don’t overdo it!
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