Demand for stocks and options is at record highs. It's like "Traders Gone Wild" out there, where as many as 72 million new traders buy up stocks and options like they're going out of style.
The party started in 2020. The pandemic could very well be winding down, but these enthusiastic, aggressive traders are pumping up the volume with even more exuberance. And I do mean "volume." Even CNBC can see that average daily volume in stocks is skyrocketing. And it isn't just stocks that are getting extra attention.
Check out the following chart and see how stock and options volume have exploded over the past two years or so.
Interactive Brokers' Steve Sosnick indicates that there has been a phenomenal rise in short-term call option trades.
So, where's all of this extra volume coming from?
In a word: millennials. The New York Times has found the average age of Robinhood users is just 32 years. With retail brokers like Robinhood offering commission-free trades, millennials are flooding the markets. This is evidenced by the 6-million-strong Reddit community that created a massive short-squeeze, sticking it to Wall Street hedge funds.
This demand creates movement. Stocks move farther and faster than ever before - the same is true for options.
And that means one thing: massive profit opportunity for the smart money. Let me show you what I've found here; a lot of pro traders don't even know about this, let alone the new crowd...
How to Use Implied Volatility to Capture Options Value... Over and Over
There is a component of a stock option's value called "implied volatility (IV)." As IV goes up, so does the value of an option.
What drives IV up, you say?
Demand for the options - and as we've seen, it's near record highs.
With the overall surge in demand in options comes a surge in IV.
Check out this chart on Netflix Inc. (NASDAQ: NFLX):
The red line shown is the IV of NFLX. Notice how the IV surges into earnings (green "E" triangle). This surge is driven by an increased demand for NFLX options into the earnings announcement.
You see, option traders are betting on NFLX moving hard and fast after the earnings announcement and willing to pay a premium to play.
Think of how ticket scalpers sell Super Bowl tickets at many times face value. It's kind of the same thing with options - and every earnings announcement is a potential "Super Bowl" event for options traders.
This IV surge pattern is consistent and reliable - as America's No. 1 Pattern Trader, it's one of my favorite profit "tools." Smart traders know how to profit with it.
Cash In on the "Dumb Money"
As more and more amateur traders throw speculative money into the markets, the profit potential for us grows...
Cash In on the "Dumb Money"
As more and more amateur traders throw speculative money into the markets, the profit potential for us grows...
The current unprecedented demand for options only amplifies the surge.
Let me show you how awesome this is.
NFLX has a consistent IV surge into earnings as I showed you above. It also tends to rise into earnings. To capitalize on a bullish prognosis on the stock and IV, on July 9, 2020, you could have purchased the following at-the-money call option seven days before earnings:
| 7/9/20: | Buy NFLX July 17, 2020 $505 Call | $22.00 |
At the time, the IV was 69%, as shown in the chart below:
Seven days later, on the day of earnings, this option was worth $33.30, a 51.2% return on investment. NFLX had risen only 3.8%.
That's not bad, sure, but the serious money was made on the IV surge. The IV rose from 69% to a whopping 187%!
You Can Use My IV Surge Strategy
As you can see... when you know how to spot the IV surge, it's pretty easy to clean up almost like clockwork - and fast, too. The basic strategy is to buy at-the-money calls or puts based on your directional prognosis, or which way you think the stock's going to go.
Once you form a directional prognosis, consider buying a call or put seven days prior to the announcement. Use the first expiration after the earnings announcement. Then, sell the option during the last trading hour before the earnings announcement. Don't forget: Confirm the earnings announcement prior to entering!
Obviously, I don't leave any of this to chance....
I've built a brand-new, revolutionary system to take advantage of IV surge trades. All of these new, gung-ho traders - as many as 72 million of them in the United States - are putting $11.2 million up for grabs every second of every trading day. That's $672 million a minute, Monday through Friday most weeks.
Like I've said, the impact on stocks has been impressive... but the impact on options has been just incredible.
(Here's a snapshot of one of my scanners that shows just a few with earnings coming up soon.)
The back-testing results of this "surge strike" system have been really promising. During this testing period, my latest trading algorithm uncovered opportunities for 300% in three days... 471% in 19 days... even 650% in eight days!
All you have to do is view my latest research right here, where I'll reveal how I've been able to score such massive returns with this phenomenon, and how I plan to keep the profits rolling.
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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.