Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
What Beginners and Pros Alike Need to Know About the Volatility Ahead
https://mney.co/2qhCnom
Required Please enter the correct value.
Twitter
Stocks: amzn, BAC, GS, KORS, lulu

What Beginners and Pros Alike Need to Know About the Volatility Ahead

There's an opportunity to profit on it today...

By Tom Gentile, America's No. 1 Pattern Trader, Money Morning • @powerproftrades • April 27, 2017

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Tom GentileTom Gentile

The nail-biter in France is over, and the official runoff between centrist Emmanuel Macron and nationalist Marine Le Pen is set for May.

Now, early polls suggest Macron will walk off with 64% of the vote and become the next president of France. The markets agree, and, more significantly, they're indicating a Macron win will be good for France and European markets.

Whatever we might think of that, it's the market reality we'll have to contend with, and far from settling matters, this news is actually going to mean increased volatility in the near future.

So this is the perfect opportunity to bone up on what volatility really is, how best to deal with it, and, of course, the best part: how to profit from it...

Turbulence Is Really Nothing to Fear

"Volatility" has a negative connotation to most folks. They hear the word and they think, "I'm gonna lose money!" But it's really perfectly natural and not scary once you understand how it works and when it shows up.

You certainly don't have to take a portfolio hit because of it. Quite the opposite, in fact.

Volatility is really just uncertainty manifested on the markets. It's uncertainty about the change in value of a security - up or down - and how quickly or slowly that change is taking place.

Higher volatility tends to mean prices change dramatically over a short period of time, lower volatility means market participants are pretty confident the price will remain about the same, or at least change slowly over the intermediate to long term.

Even though the outcome was seen as favorable to global investors, the French election result "stirred the pot" and created some upward volatility in Goldman Sachs Group Inc. (NYSE: GS), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), and other banks and financials as they jumped higher.

A call strategy on stocks going up like this is a great way to turn small or modest upward moves of a couple percent or so into tidy profits, even double and triple digits, while drastically limiting your risk.

But financials are not going to be the biggest source of volatility over the next month...

Earnings Season Always Shakes Markets Up (and Down)

We are about halfway through earnings season, moving right into the thick of it. Around 80% of the companies on the S&P 500 are due to report over the next two weeks.

Earnings reports naturally always add volatility, much more so than they have for the past two weeks. In fact, over these next weeks, we're likely to see dramatic price moves as companies miss and beat their expectations in an atmosphere of higher profits overall in 2017.

I think we can expect significant downside volatility in the U.S. retail sector. It's been hit hard - I've heard it called the "Retail Ice Age" or the "Retail Apocalypse" - and it's a very challenging environment for buy-and-hold investors, but offers some juicy opportunities for nimble traders. I'll show you what I mean in a minute.

First, let's look at the price volatility around last earnings season from a couple of well-known retailers -  that have had a well-known hard time recently: Lululemon Athletica Inc. (Nasdaq: LULU) and one I've talked about on CNBC World before,  Michael Kors Holdings Ltd. (NYSE: KORS).

When they miss on earnings (that's the "E" in the green triangle in the graphic) or fail to paint a rosy picture going forward, the price moves, and in many cases, the drops are pretty severe:

Now let's take a closer look at what happens after earnings, when sentiment starts to firm up about forward guidance the company just reported...

You can see, most clearly with KORS, volatility increased going into and immediately after the earnings report and then lessened for a short time afterward.

Covered put options are the best way to trade stocks experiencing downside volatility, like KORS and LULU. These are generally much safer than short selling, because you can limit your risk and exposure to unexpected increases in price - pure poison if you're on the short side, because your losses are theoretically unlimited.

Now, nothing I'm seeing in retail has given me reason to change my mind about the continued challenge retail stocks will have going forward. The stocks will be volatile, and they will continue to reward traders who play on that volatility, just as much as they'll punish investors who hold them.

But there's always opportunity here.

Try This Trade Out Today for Quick Profits

Join the conversation. Click here to jump to comments…

Tom GentileTom Gentile

About the Author

Browse Tom's articles | View Tom's research services

Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.

… Read full bio

Login
guest
guest
1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Thomas Coleman
Thomas Coleman
5 years ago

"Covered put options are the best way to trade stocks experiencing downside volatility, like KORS and LULU. These are generally much safer than short selling, because you can limit your risk …"

I assume you are talking about BUYING puts while not owning the underlying stock (which would simply be insurance). What does the word "Covered" mean?

0
Reply
LIVE
Visit Money Morning Live


Latest News

March 29, 2023 • By Chris Johnson

Commercial Real Estate is Feeling the Aftershocks of the Financial Crisis

March 29, 2023 • By Kenny Glick

Here's How You Can Find a New Trade If You Just Missed Your Entry

March 29, 2023 • By Garrett Baldwin

It's Not You... It's the Market
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles Brutus Alerts

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz