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It's the time of year when investors expect Santa to come to town, stuffing their stockings with profits. Over the years, there has been an upward bias in December dubbed "the Santa Claus Rally," and it has been a reliable tendency to spread holiday cheer.
Since 1945, December has had an upward bias – nearly 1.5% on average – with about a three in four chance of producing winning trades.
This year is shaping up to be no different. And we're going to help you make the most of it with the best call options to trade right now.
The Santa Claus trade itself is a bit more specific, this year expected to run from the first trading day after Christmas – Dec. 28, 2020 – until the second trading day of the New Year – Jan. 5, 2021. It has produced winners about two-thirds of the time over the past 74 years for an average gain of 1.3%.
That's why Money Morning's options trading specialist, Tom Gentile, is excited to bring you a trade that could potentially return 150% by Jan. 8.
Of course, you might be thinking 1.3% doesn't sound like a lot. But don't forget that it takes place over just six trading days, and it's an average over all stocks. With the right research, we can look at only those stocks that will crush the average. Then we'll juice the returns even more with an options trade.
To find a trade with a real chance of cashing in on this rally, Tom starts his proprietary Money Calendar. This tool shows him which stocks have performed the best during this time period. It crunches decades worth of data to zero in on not only which stocks tend to move the most this time of year but the exact days to trade them for the best chances of success. Match that up with the Santa Rally and we start with a solid foundation for a trade.
Of course, building a profitable options trade takes more than finding the right stock to play. You also need to find the right option at the right price to maximize your potential.
Options prices are based on many factors, such as strike price and expiration date. But the most important factor for options prices for us is implied volatility (IV).
Implied volatility measures the expected demand for an option. The higher the IV, the more in-demand and the more expensive the option; the lower the IV, the lower the demand and the cheaper the option.
If you have to pay too much for an option because demand is high, you might not make as much money, even if the stock moves in the right direction.
That's why Tom is targeting stocks with historically great performance during this time period that have low IV, which means you can get them cheaper, maximizing your upside.
Here's the options trade…