Stocks tumbled 7% in one day last week, ending what had been a breakneck rally since March.
For options traders, it might seem like a time to switch to buying puts instead of calls, but the best options to buy on Robinhood today are actually call options. But these aren't just any calls. It's a backdoor strategy to profit from the government's attempt to inject cash into the economy.
After all, Jerome Powell and the Fed have already said that they are going to do whatever it takes to support the economy.
"Whatever it takes" means providing money - and lots of it - to keep liquidity high for business and to help individuals pay their bills and consume essentials. Let's also not forget that this is an election year where an incumbent administration will likely pull out all the stops to increase its chances for reelection.
In other words, there is going to be a lot of money sloshing around out there while the federal deficit balloons by trillions of dollars. One thing for sure is that the more dollars there are out there, the more pressure there will be on its value. It's just the law of supply and demand.
In other words, the dollar is likely to weaken over the next few months.
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But the real problem is that the Fed and the administration are not likely to stop. If COVID-19 cases spike up later this year in more than just a few states, then the economy is likely to close up again. This time, it seems unlikely that will be by government mandate. Rather, people may just stay home on their own. No going to restaurants. No shopping for clothes. No vacations and trips.
More stimulus of trillions of dollars will likely be on its way.
While it may be tempting to short the stock market, in the current environment any bit of good news, such as the jobs report or a new vaccine, can get the bulls running again. Rather, Money Morning Quantitative Specialist Chris Johnson has a different way to profit.
Chris is all about looking at the data and finding options trades that give you the best chance to profit. So while other traders are cutting their losses or pouring money into puts, we're looking at where real opportunity is lurking.
And that makes this the best options trade you can make right now, one that's simple and straightforward enough to set up right in your Robinhood or WeBull account...
The Best Options Trade on Robinhood Today
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Because the supply of U.S. dollars is soaring, the value, i.e. price, of the greenback is very likely to fall. Chris likes the Invesco DB US Dollar Index Bearish Fund (NYSE: UDN), which goes up in value when the U.S. dollar falls.
Over the next six to nine months, Chris thinks the Bearish Fund will climb to $30 per share from its Friday close of $20.20. He suggests using a limit price of $21 per share but as long as you are within a few dimes - there is a little leeway because this is an intermediate-term play. It is also a good hedge on the rest of your portfolio, protecting it should the market continue to be volatile.
Now, a gain in the neighborhood of 50% is pretty strong, but as usual, we can do better with an options trade. For that, Chris recommends buying the UDN Dec. 18, 2020 $21 calls (UDN201218C00021000) using a limit order of $0.30. Again, because this is not a quick trade, we can give the price a little slack - but not too much. The option closed Friday at $0.35, so don't chase it too far. But if held to the December expiration and the UDN ETF reaches Chris' target, it could be worth $9.
And don't forget that while options trades can reduce your risk versus buying the shares outright, they do come with risk. It's important to use your speculative capital here or as a hedging strategy for your overall portfolio.
But once you get the hang of options, there are even better opportunities out there. If you want our experts to do the hard work for you and send options trades directly to your inbox, we've got you covered. In fact, we have an exclusive invitation for Money Morning readers.
Learn how you could capture 52% gains, 78% gains, and even 108% gains in a matter of days, right here.