What a week!
I don’t know about you, but I can’t remember the last time so much news has come out over such a short amount of time.
Think about it… Almost two weeks ago, there was an attempted assassination of the former president and Republican nominee, Donald Trump.
Since then, we’ve seen President Biden drop out of the election and endorse Vice President Harris as the Democratic nominee…
We’ve seen the biggest sell-off in U.S. tech stocks in over a decade, thanks to earnings misses from major companies, like Tesla, Inc. (TSLA) and Alphabet Inc. (GOOGL)…
And we’ve seen the VIX – or Fear Gauge as it’s commonly known –hit a three-month high, indicating more fear and uncertainty among investors – and more volatility.
It’s been an absolute bloodbath for the markets.
So, we’re going to talk about it – and what I plan to do as a trader and investor.
But first, I want to take a minute to answer a few questions I received in the mailbag.
Let’s jump in…
Q: Hi Tom, I enjoyed this article on volatility during earnings season. Can you tell me how or where I can see an IV chart?
A: Hey, thanks for the question! That is actually part of my proprietary software, but you can find IV data online and through your broker. While brokerages that have options IV can show an average chart, my software is able to break it down into different time frames. This is crucial for earnings – and for the type of increased volatility we’ve been seeing. I will continue to show these as much as I can.
Q: Good day, I wanted to know why there can be a discrepancy between the recommended limit price of call spread and price of the option? For example, I wanted to place an order to open a call spread for no more than $2.50… But the option was trading over $8. How is this possible?
A: There’s been a lot of volatility in the market – especially in the tech sector – over the past week. This could be why you’re seeing some weird option prices… But it’s also quite possible that you’re looking at individual option prices instead of the combined spread. Remember, in a call debit spread, you want to subtract the price of the option you’re selling-to-open from the option you’re buying-to-open to get the total cost of the combined spread.
For example, let’ say you wanted to open a call debit spread on a stock. The call option that you’re buying-to-open costs $2.00, and the call option that you’re selling-to-open costs $0.50. To get the total price of the spread, you would subtract $0.50 from $2.00, giving you a $1.50 opening price.
Q: What is your biggest investing mistake and what you learned from it?
A: My biggest investing mistake, without question, was jumping into the markets in my twenties without having the knowledge and practice to know what I was doing. On top of that, because I was young and naïve at the time, I didn’t understand that my first winning trade was just a stroke of luck. I hadn’t done the research on the stock… I fell into the hype about it from watching the guys on TV… and I threw my money into it without having any sort of plan. When Black Monday hit, it wiped me out completely – and then some. I spent the next year working to pay back thousands of dollars to my broker.
Although it didn’t feel like it at the time, that experience was probably the best thing to happen to me because it taught me the right – and wrong – way to make money in the markets. I spent that next year learning from my mistake and investing the time into learning and practicing before spending a dime on my next trade. And, I’ve made it my mission since co-founding and building one of the world’s biggest options education companies, Optionetics, to empower investors with knowledge.
Q: If you said 98% of stocks and funds are not worth trading, does that mean you don’t invest in stocks and just trade options? Or are you saying 98% of stocks don’t have good options available on them?
A: Great question! When I say that 98% of stocks an exchange traded funds (ETFs) are junk, I mean that they’re overpriced, overvalued, or too risky. Simply put, they’re not worth your money – whether you’re buying them outright or trading options on them. Instead, you want to focus on the cream-of-the-crop stocks and ETFs in the market – the top 2%.
I showed you how to do this in my previous video… But to recap, you can find that list of stocks without your own software by looking at the Options Penny Pilot list here. Then, click on the “MIAX Options Penny Class List” CSV file under “Classes in Options Penny Pilot Program on the MIAX Emerald Exchange.”
Next, you want to follow these three steps:
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Look for stocks over $100 per share
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Look for stocks that move an average of 1% a day between the high and low
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Look for stocks that correlate to the market
As for being an investor or trader? I’m both. There are many ways invest and trade – strategies we’ll continue to talk about here at Patterns & Profits…
And, as I mentioned above, I want to share with you what I’m doing about the market’s biggest news stories this week – as both an investor and trader.
Click on the video below to begin.
And remember, you can email me any time with any questions, comments, and success stories you’d like to share. Just keep in mind that I can’t give you any personalized advice.
Have a great weekend!
Tom Gentile
America’s Pattern Trader