You're stuck at home. Restaurants are shutting down. Retirement accounts are in shambles.
Tom Gentile, Money Morning's options trading specialist, said this yesterday: "It didn't start yesterday, and it's not going to end tomorrow."
But Tom still has trading strategies for this market. Yesterday, he said traders should "simply take less risk, look at what's going up in a down market, and exploit volatility using options."
He's done this successfully so far in the year using options trading strategies. In fact, we had an options trading strategy earn readers 1,781% in just three weeks at the start of the coronavirus outbreak in the United States.
We're going to share a lower-risk options trade with you today. And it's likely to make you money. Just look at how Tom Gentile helped readers profit more than 1,781% a few weeks ago...
How the Options Trading Strategy Works
The CBOE Volatility Index (VIX) is above 70 right now. It hasn't gone much higher than 30 in the last 10 years. That's a lot of fear driving the current market.
And that means you're going to see some big percentage moves in stocks over a short time period.
At the start of this thing, Tom saw that stocks were going to slide big time. Specifically, he knew the oil and travel industries were en route to collapse.
Take Action: Market volatility has everyone on edge, but we have three steps you can take to protect your money and even set yourself up to profit. Click here...
He pointed to stocks like Climarex Energy Co. (NYSE: XEC), Marathon Oil Corp. (NYSE: MRO), and Apache Corp. (NYSE: APA) as candidates for buying out-of-the-money put options. Those contracts have soared in value over the last few months.
We first recommended an April 17 $10 put option on Marathon Oil on Feb. 26. The contract has gone from $1.40 to $6.75, a profit of 382% in the last few weeks.
But Tom highlighted a trade that would earn investors significantly more money in a shorter time.
His April 17 $40 put recommendation on Carnival Corp. (NYSE: CCL) has gone from $1.60 to $30.10 in value since late February. That's a profit of 1,781%.
Now, those profits are in the past. But there are still moves to make. After all, the high volatility makes these plays happen.
Tom Gentile recommends "trading options on ETFs like SPY and USO" and using spreads to hedge any losses.
Here's a trade that does just that. It's low-risk, but it gives you real upside in a time like this.
The Coronavirus Options Trading Strategy
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Since we're in a down market, and we're not sure how much farther down it will go, we're going to try to limit risk while still ensuring upside.
We've recommended this basic options strategy before - it's called a "straddle."
To perform a straddle, you simply need to look at the price of a stock, then buy both a call option and a put option at that price, with the same expiration date.
Because the options contract still has time value, a small movement in price up or down can mean significant shifts in price. And as you approach expiration, the option will have gone one way or the other, and your losses on one will pay for your investment in the other.
Ideally, they wouldn't cancel each other out - you would end up with a profit if the stock moved up or down at all significantly.
And since stocks are so volatile right now, you can fully expect movement.
Our play this week is a spread on the SPDR S&P 500 ETF (NYSE: SPY).
You can buy a July 17 $240 call on SPY for $29.69 and a July 17 $240 put on SPY for $34.22.
With the 100 shares under each contract, you'd be spending $6,391 on this play.
But a big move in either direction would eventually pay for the trade. The beauty of it is that the cost of one contract is paid for by the success of the other.
Readers made 200% profit on GE stock options last year with this same play.
Action to Take: The SPDR S&P 500 ETF (NYSE: SPY) is down more than 20% in the last three months. If we want to lower risk but increase our chances of profit, a straddle is the move. Look into a SPY $240 call options for July 17 and a SPY $240 put option for July 17. If the stock moves significantly in one direction or the other over the next three months, you make money.
Dizzying Market Moves: It feels like the stock market changes course every time you blink, but you can limit risk and even line up profits. Find out just what to do (and not do). Click here now...
Follow Money Morning on Facebook and Twitter.
About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.