Stocks soared higher to start the week but hit resistance.
Monday’s move pushed the S&P 500 and Nasdaq 100 back into all-time high levels.
You were disciplined and didn’t chase the action; we flipped the cards and took on a bearish hedge.
This Friday is monthly options expiration week, which we typically see prices push higher.
However, with earnings season kicking off, new stimulus delays, and stocks overextended; buyers are sitting on hands.
Now, the fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX) is holding at 27. That means volatility is 2x the normal and markets will see quick moves higher and lower.
- Buy-To-Open the Suncor Energy Inc. (NYSE: SU) Oct. 23, 2020, $12.50 put (SU201023C00012500) up to $0.35 per contract or better, for the day.
- Sell-To-Close the Suncor Energy Inc. (NYSE: SU) Oct. 23, 2020, $12.50 put (SU201023C00012500) at the market.
This expires next week and while we were right, prices haven’t plunged lower as we anticipated.
So instead of fighting the tape and getting whipsawed, let’s exit this for a small win.
Right now, we’re holding:
- Nordic Amer Tankers (NYSE: NAT) Oct. 16, 2020, $5 call (NAT201016C00005000
- Melco Resorts & Entertainment (NASDAQ: MLCO) Oct. 16, 2020, $20 call (MLCO201016C00020000) - 50%
- Vonage HLDGS Corp. (NASDAQ: VG) Dec. 18, 2020, $11 call (VG201218C00011000)
- Snap Inc. (NYSE: SNAP) Oct. 16, 2020, $29 call (SNAP201016C00029000)
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.
I’m still holding on to some of the October options. What would happen if I held my options until they expire? -Darrell L.
First, it always recommends selling any position with value left on them before they expire.
If you were to hold a position until expiration, one of two things can happen.
The determining factor is whether the underlying stock is trading above or below our specified strike price at the time of expiration.
If the stock is trading higher than the strike price by 1 cent or more, it’s considered “in-the-money” (or ITM).
When an option expires ITM, it will automatically be exercised by your broker.
For each contract you hold, your broker will automatically purchase 100 shares of the company at the option’s strike price.
Owning shares of stock isn’t something that’s part of our strategy.
Stocks tie up large sums of money and are pretty slow-moving, which is the exact opposite of what we want.
Short term options allow us to capture explosive stock movements without tying up capital owning shares.
That’s why I will always send you instructions on selling ITM contracts close to the expiration date.
Now let’s look at the other possibility at the time of expiration.
If an option expires “out-of-the-money” (or OTM), that means the stock is trading lower than our strike price.
In this case, the option will expire and will be removed automatically from your trading account, so there’s no further action required on your part.
That being said…
If we ever need to act on an expiring trade, rest assured I will send updated trade instructions close to the options expiration date.
This will give us plenty of time to close out the trade for extra profit, or to salvage any remaining value to put towards our next winning trade.
Simple, but smart and patient money management.
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]est.com.
Joshua M. Belanger