Market Volatility is Your Next Chance at a 100% Profit
As I write this, 2022 is shaping up to be the year of volatility. While that may frighten timid investors, I see it as a huge opportunity.
Thursday’s rout sent the Nasdaq, S&P 500, and DOW tumbling 4.99%, 3.56% and 3.12%, respectively – but it also sent the CBOE Market Volatility Index (VIX) up as much as 31.47% in the same session. By Friday morning, the VIX had jumped another 10% in early trading.
The Fear Index
In case you’re not familiar with the VIX, it is a real-time market index representing the market’s expectations for volatility over the coming 30 days.
In more simple terms, when volatility increases and investors start getting scared, which is why the VIX is commonly referred to as the fear index.
The VIX isn’t a stock or an ETF, it’s merely a gauge of expected volatility (or fear), and volatility (or fear) tends to dissipate quickly when any good news shifts sentiment.
When that happens and expected volatility goes down, the VIX drops a lot, very quickly.
At this point, the majority of headlines are negative: The Fed raised rates by 50 basis points, the economy contracted in the last quarter, fears of a recession are looming, China’s zero-COVID policy is wreaking havoc on their domestic economy and having implications for the global supply chain of goods manufactured in China, the war in Ukraine shows no signs of letting up, and stocks that miss estimates are getting absolutely hammered.
It will only take one less-bad headline to shift sentiment (even if just for a few days) to the positive. If that happens, the VIX will collapse, and that would give an opportunity for a quick triple-digit profit.
Here’s I like playing it.
If the VIX trades above $35 by May 13, I like buying the VIX May 25, 2022 25/24 Put Spread for $0.40 or more. Plan on selling the spread for a 100% profit.
That’s all for this week.
With volatility spiking so high, I don’t want to target individual stock opportunities. I expect volatility will come down by the end of this week. If that happens, I’ll be targeting stocks (in next week’s watchlist) that have been knocked down significantly.
Until then, don’t let this week’s volatility frighten you or shake your confidence. The volatility we experienced this week just means that some really great stocks are on sale, and looking more and more attractive for the long run.
I’ll be back tomorrow with your latest installment of Take it to the Bank Tuesday. In the meantime, please send my staff your favorite stocks to firstname.lastname@example.org. I will take time on Friday to analyze all of them to tell you which are buys, sells, or holds.