I'm Calling a "Blue Light Special" on These Stocks

If you're my age, you probably remember shopping at Kmart... and if you ever spent more than 30 minutes in one, you know the famous "Blue Light Special."

At random times of the day, you'd hear "Attention Kmart shoppers!" and they'd announce a steeeep, 15-minute discount on some product. A flashing blue light would come on in the aisle, and a big crowd of shoppers would close in.

In fact, for years, the phrase "Blue Light Special" was pretty much a code word for a big, fast-moving opportunity.

Well, Kmart is on life support, but the legendary "Blue Light Special" hasn't gone anywhere.

It's alive and well in the stock market, of all places. Big, fast-moving opportunities for stock profits are often announced ahead of time, and if you're savvy, you can move right in to jump on 'em.

You just need to know how those moneymaking events are announced...

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It's Not Quite a Flashing Blue Light, but It's Close

An opportunity, especially a visible one, does two things: It draws crowds and increases demand.

It happens in Kmart, and it happens in the stock market.

This past week, I showed you how the Chicago Board Options Exchange Volatility Index - the VIX to you and me - is a massive moneymaker because it's a great market sentiment indicator and predictor of market turning points.

Well, we can do the same with individual stocks - we can actually detect stocks that are drawing a crowd using options.

You see, when the demand for options on a stock increases, the options get more expensive. We can measure the expense using implied volatility (IV). As demand for a stock's options increases, so does IV. As demand decreases, IV also decreases.

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This is commonly seen in stocks that break out at earnings.

Check out this implied volatility chart for Nordstrom Inc. (NYSE: JWN).

Notice how the red line spikes up into earnings (green "E" triangles). Well, that's just like a Blue Light Special; they're spikes in demand. There's essentially a crowd around this stock's options.

So what's the attraction here? The catalyst can be different for every stock, but in this case, traders are pouring into Nordstrom's "aisle" because it tends to gap at earnings, like so:

Gaps add up opportunity, and expectant traders are willing to pay a premium for that opportunity.

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Opportunity creates crowds in the market, and crowds in the market move stocks. It's as simple as that.

Here are some shares that came on my radar because of a massive volume spike.

A Great Example... and a Fantastic Stock to Own

On June 14, Innovative Industrial Properties Inc. (NYSE: IIPR), a unique marijuana industry real estate investment trust (REIT), announced it is increasing its quarterly dividend to $0.60 (an annual yield of 2.4%).

That's great news... the kind of news that draws a big crowd, as evidenced by the red spike in implied volatility. Traders were buying up IIPR options like they were going out of style.

This "Blue Light Special" has had the expected effect on the stock - an "UP!" effect.

As I mentioned a minute ago, Innovative Industrial is a REIT that provides capital and business space for the booming, $12 billion-plus American cannabis market - a field packed with small stocks with the potential to deliver massive winning gains.

I'm a trader, but I'll buy a great stock when I see one, and IIPR shares definitely fit the bill as a fast-growing dividend-boosting trust in a booming sector. Buy!

But what's really cool about my "Blue Light Special" strategy is that it can identify insider activity and an imminent move.

This happens with pharmaceutical companies awaiting a U.S. Food & Drug Administration (FDA) announcement for a new drug. It's not at all uncommon for these IV spikes to occur when the stock is flat.

In other words, no news is out yet, but demand for the options has spiked. That means one thing: Someone knows something and is buying options. Virtually every time, news will follow a number of days after the spike.

Just look for the flashing light of spiking implied volatility, and you stand to profit nicely.

The "V3 Effect" Could Turn a Small Stake into $2.2 Million...

... And it could happen remarkably fast, in a year's time. What's more, tapping into this effect is easy to do. As you'll see in a second, you can make these "money grabs" yourself - again and again - in about five minutes a day! Take a look at how it works.

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About the Author

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.

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