By MONEY MORNING STAFF REPORTS, Money Morning
Dear Red Alert Reader,
What's happened in the stock market this year is truly unprecedented. But it isn't just a curiosity for the history books – it's one of the biggest moneymaking opportunities of your lifetime.
The Dow plunged 37% from its all-time highs in February to hit a 2020 low on March 23. Since then, stocks have rocketed higher. The Nasdaq surged 45% higher to leap into positive territory on the year by June 8.
And these whipsaw moves have made traders an incredible amount of money.
Money Morning readers had the opportunity to book gains of…
… 300% on Marathon Oil's plunge in April.
… 308% on Lowe's surge on the economy's re-opening.
… over 1,000% profits on Carnival Cruise in the wake of the pandemic.
As you can see, it doesn't matter which way the markets are moving; traders are cashing in on any kind of move.
And the opportunities keep coming. The CBOE Volatility Index (VIX) just raced 60% higher between June 10 and June 11, a sign Wall Street traders expect markets to keep making dramatic moves.
To make sure you don't miss out on these moneymaking swings, Tom Gentile and Money Morning's team of trading experts have given us five of their best stocks to trade right now. These trades – complete with target price projections – are yours free just for being a Money Morning reader.
Tom isn't just America's No. 1 pattern trader – he's taught more than 300,000 people to trade options using his time-tested strategies. His first options trading system – Optionetics – was bought by a financial giant in 2009. Today, he's bringing his strategies right to you.
Be sure to keep reading below to see how you can use Tom's options strategies to turn up the gas on these trades.
Once you're ready, our first trade gets you in front of a coming housing market boom as mortgage interest rates drop to historic lows…
Zillow Will Ride a Renewed Housing Boom Higher
Money Morning Quantitative Specialist Chris Johnson thinks that this is the perfect environment for Zillow Group Inc. (NASDAQ: ZG).
Zillow is a real estate marketplace for buyers, sellers, renters, and anyone else who wants real estate data. It can hook up buyers and sellers with agents and even help buyers negotiate with its valuation tools.
Think of it as the one-stop shop for real estate.
The real estate market slowed to a crawl this spring, after the start of the pandemic. Pending home sales plunged over 20% in March. But a combination of new developments will ignite the real estate market soon.
First, mortgage rates have dropped to their lowest level over. Home buyers can finance a house with an interest rate under 3% right now. That's going to get buyers off the sidelines and into the market in a hurry.
Second, sellers have kept their homes off the market during the pandemic. Stay-at-home restrictions made open houses and showings more difficult, if not impossible. And the uncertainty surrounding the pandemic had some sellers gun-shy about unloading their biggest asset.
But as restrictions loosen and the economy rebounds, all those backed-up listings will start showing up in a hurry.
The combination of housing inventory flooding the market alongside record-low interest rates could make for a hot housing market by the end of the summer and into the fall. And that's going to be a massive catalyst for Zillow, the real estate disruptor sitting at the center of it all.
Chris thinks that Zillow is heading to a price of $80 per share over the coming months. And to trade this stock for bigger gains, follow the options play instructions in the sidebar.
A Bullish Trade on a Bearish Projection
One of the biggest winners of the pandemic and Great Isolation that followed was Zoom Video Communications Inc. (NASDAQ: ZM).
Zoom became indispensable amid the social isolation of the pandemic. Companies relied on it to connect their employees working from home, healthcare industries used it to connect with patients, and many others used to connect with family, friends, or even take a virtual workout class.
That propelled Zoom stock to surge 225% higher on the year, even as the rest of the market plunged in March.
But it's going even higher…
Money Morning Chief Investment Strategist Shah Gilani says the stock is heading for $300 a share. That's another 35% gain for you – and one you can multiply with a savvy options trade.
You see, Zoom has two catalysts working for it.
First, it's already established itself as the premier communications tool for business. And as more and more businesses embrace work-from-home policies, Zoom will continue to be essential long into the future.
Leading companies like Facebook Inc. (NASDAQ: FB) and Alphabet Inc. (NASDAQ: GOOGL) have already announced permanent policies that allow employees to work remotely from anywhere in the country. Workplace Analytics predicts 30% of U.S. workers will be working from home by the end of 2021. That's up from just 3.6% in 2018.
Second, a spike in coronavirus cases could extend existing social distancing policies much longer into the future.
While that would be a negative hit for the broader economy, it would be good for Zoom. It's the same reason the stock rallied 54% higher between Feb. 19 and March 23, the same time the Dow plummeted 37%.
As remote work and social distancing policies are extended to deal with a second wave of the virus, Zoom will entrench itself even deeper into our daily lives. And that could galvanize even more companies to implement permanent remote work policies, another catalyst for Zoom.
Discount Retailers Are Thriving
It's no secret the pandemic and shutdown of the economy punished retailers the most. We've seen bankruptcies from J. Crew and Neiman Marcus, while iconic brands like Victoria's Secret teeter on the verge of collapse.
It makes perfect sense. With malls closed and people stuck at home, spending money on clothes couldn't be a lower priority. You simply can't shop, try them on, or have any place to wear them outside of your house.
But as economic restrictions ease, one class of retailers is going to thrive: discounters.
With the unemployment rate sitting an astounding 13.3% and the future of the economy uncertain, Americans will be thriftier than ever. That means less spending at luxury outlets – like Neiman Marcus – and more spending at brands like TJ Maxx. And that's exactly where our trade comes in.
The trade is on TJX Cos. Inc. (NYSE: TJX), the parent company of the TJ Maxx and Marshalls discount clothing and home furnishings retail chains.
Not only do these stores offer lower cost, name-brand items to shoppers, but they keep their own costs low too. There is little advertising, so costs stay low, and they benefit from the shopper's desire to browse and find deals. Chris calls that a retail "treasure hunt."
And now that more stores are opening, people can't wait to get out of the house to do it – especially since they can still save a few dollars in the process.
Chris likes how the stock is behaving, too. It recently moved higher from its April-May sideways trading range with strong volume, and money continues to flow into the stock. That means buyers are more aggressive than sellers, not letting the price dip too far before they swoop back in to buy more. Apparently, they think TJX will thrive as well.
The stock is still in good shape to buy, even now, after such a strong gain. Given its track so far, it would not be a surprise to see it top the $60 level this summer, from its current $52.76. That would be a 13.7% gain and a nice trade in the current environment.
Social Distancing Will Keep This Stock Thriving
Since Americans are likely to be spending their summer months in the safety of their own homes, even after stay-at-home orders are officially lifted, we're expecting a large number of homes to be sporting new outdoor entertainment areas, a huge source of business for another great stock.
It's the same trend that propelled Lowe's nearly 90% higher since the March 23 bottom.
That's a very good trend for Trex Co. Inc. (NYSE: TREX) too. It makes composite decking materials that are increasingly popular against traditional wood. Plus, its products are sold through both professional contractors and home improvement stores like Lowe's. Whether consumers hire a professional to build a deck or do it themselves, Trex is the go-to supplier.
The company's last earnings report blew away Wall Street estimates, and the demand for shares skyrocketed. That confirms this trend is real, but it's just getting started.
The technicals also line up to Chris' liking with a long rising trend and strong volume, even three months past the panicky market bottom in March. But Chris notes that the run-up has attracted some short sellers so he thinks the stock might take a little while to get moving. When it does, short covering could push the stock even higher.
Chris projects this stock will continue its bullish run to $150 a share in August.
The worst isn't over, but Wall Street acts like it is. They'll be hit hard when more bad news comes. But we can protect ourselves.
Since the start of the pandemic in the United States, more than 40 million people have filed for unemployment. The current unemployment rate stands at 13.3%. Second quarter GDP fell by an annualized rate of 43% as the economy officially entered a recession.
Yet, the S&P 500 rallied into positive territory in June, while the Nasdaq rattled over a string of all-time highs.
Even as the pandemic as slowed and lockdowns have ended, do you look at our economy and believe it's better than where it was in January?
This is a clear case of Wall Street and retail investors getting over their skis. When the rally started in April and May, investors not wanting to be left behind poured money into stocks, pushing them even higher and bringing even more investors back into the markets.
That could come back to bite them soon, if it already didn't when the Dow slid 7% on June 11.
We still don't know the extent of the economic damage. Q1 earnings reports were brutal, with many companies discontinuing guidance for the year. And those reports only included a few weeks of the pandemic. Q2 reports, due out in July, will be even uglier and will show just how bad things got.
We've also seen huge problems with some recovery measures, like the SBA Paycheck Protection Program (PPP) loan program running out of money. Some reports say that only 5% of businesses that applied got money. And such huge institutions as Harvard University are getting millions despite the fact that they are sitting on an endowment worth $40.9 billion.
That's leaving many small businesses across the United States to close up shop permanently. Those jobs aren't coming back, even when the economy fully reopens.
And without a vaccine, social distancing rules will still apply, meaning we shouldn't expect to see any "shoulder to shoulder" crowds anytime soon, while many people will continue to stay home until it's safe to go out in public.
That's going to keep a lid on everything from hotels and travel to consumer spending. Again, is this a better economic outlook than in January?
Eventually, that reality will catch up to Wall Street and could send stocks tumbling again before the true recovery begins.
But you can turn any such tumble into a payday with this options trade.
Chris points to the Oct. 16 2020 SPY 260 puts trading for about $11.
Note that this is a put option on the S&P 500 SPDR ETF (NYSEArca: SPY), and it is very liquid. That means you should have no trouble buying or selling it at the right price. One problem new options traders have run into is buying illiquid options. They get on the right side of the stock's movement but have no one to sell their options to. That won't happen with SPY.
Also, note that it expires in October of this year. That means it has some time to work, but if the market does pull back before then, you can cash in your profits at any time.
After that, there is no reason not to be optimistic about the future of the economy and the market. But until the weak money has been shaken out, there will be plenty of opportunities to profit on downside moves.
And now that you know the best trades to make today, here's how you can multiply your gains by using options…
How to Amplify Your Profits with Options
While you can trade these stocks for quick gains over the next few months, you can amplify your returns by using options.
Many traders assume options are complicated, but that couldn't be further from the truth. Options are actually quite simple.
An option gives you the right to buy or sell a share of a stock at a specific price by a specific date. That's it! A call option gives you the right to buy a stock, so you'll use these when you expect the stock's price to rise, while a put options gives you the right to sell a stock, so you'll use these when you expect the stock's price will drop.
Think about it this way. Moderna Inc. (NASDAQ: MRNA) has been one of the biggest winners this year. Its share price shot up 232% from around $20 in January to about $64 today. But imagine if you could still buy shares for $20. That would be quite a profit right? Well, options traders who locked in that $20 price could have.
And the best part is, each options contract gives you control over 100 shares of stock without the expense of buying all those shares yourself. That gives you triple- and quadruple-digit upside without tying up your cash in hundreds of shares. Since you'll have less money tied up, your risk is lower too.
To multiply your profit potential on the stocks we've outlined in this report, look for options contracts that expire in around three months and have strike prices just out of the money. That just means if you expect the price of the stock to rise, you'll look for a call option with a target price just above the current price of the stock. And if you expect the price of the stock to drop, look for a put option with a target price just below the current price of the stock.
You'll pay a little less for options that aren't in the money – when the price of the stock is already above the option's strike price, in the case of calls – but by keeping the strike price close, you'll have a better chance of netting a big gain.
One mistake options traders make is buying options way out of the money. These options are cheap for a reason. The stock will have to move a huge amount in a short time for the option to have value. They can work in extreme situations, but buying options closer to the money gives you a better chance of making a profit.
Remember, if you're targeting a stock you expect will rise, use call options. And if you expect the stock to drop, use put options.
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