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Many people fear volatility in the market. It's no wonder because the media constantly harps on how volatility is bad for your investments.
What they don't tell you is that volatility cuts both ways. If there were no volatility, then there would be no movement in the market. Everything would just sit still. That means no gains.
The truth is we need volatility. And that's doubly true for options trades. Volatility is where the paydays come from.
In fact, Money Morning Quantitative Specialist Chris Johnson says volatility is a trader's best friend, and right now, his best call and put trades could help you reap the most of a December volatility spike.
You see, one of the great things about volatility for options traders is that we can make money no matter if the underlying stock moves higher or moves lower. The important part is pinpointing a stock to trade and then leveraging its movement with the right options trade.
After a strong few months, especially since the Oct. 30 low, stocks are in need of a little rest. Chris sees this in the CBOE Volatility Index (VIX). When stocks are looking strong, the VIX tends to fall. But lately, it has been bumping around at low levels, and that means there is really no place to go but up.
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When the VIX goes up, stocks tend to stumble. Just note that stumble does not mean collapse.
It's the proverbial "healthy correction" our friends in the media like to write about. But no matter the name, it can be the pause that refreshes markets so they can reach higher highs.
That's setting up the perfect opportunity to buy put options ahead of a spike in volatility, then turn around and buy call options for cheaper once stocks pull back a bit.
And there's one stock that's perfect for this call and put trade...