Volatility Equals Opportunity, If You Know Where to Look
"Passengers, the pilot has flipped on the seatbelt sign as turbulence lies ahead. Please buckle your seat belt for safety," the flight attendant warns at 35,000 feet.
Market forecast: The view from the trading screens in late March 2018 reveals unstable air, the potential for some bumps and perhaps even a few severe declines in altitude.
The S&P 500 is down roughly 10% from the January high. The stock index is testing major support at the 200-day moving average. The Federal Reserve just hiked interest rates and the United States and China are lobbing the first strikes in what could prove to be a potentially significant economic trade war.
What's a trader to do?
- Check your emotions at the door.
When the stock market moves fast, emotions get triggered. When stocks are falling, fear, panic, anxiety along with a heightened heart rate are common reactions. That's normal. We are humans. As traders it may be unreasonable to expect to ever remove emotions from your trading completely.
What you can do is recognize emotions for what they are and don't let them overtake your logical decision making process. How to do this? Take a deep breath, or several. Drink a glass of water. Walk around the block. Take another deep breath. Recognize the emotions for what they are.
- Get back to the business of creating and implementing your game plan.
With the potential for a significant stock market correction or perhaps even bear market cycle turn looming, consider your options. The fabulous thing about trading options is that you can easily make money in both rising and falling markets.
Investors are conditioned to believe that you can only make money in rising markets. Not true. Options work equally well in rising and falling market conditions. That is the beauty and elegance that option trading offers you.
- Choose your approach: hedge retirement assets, focus on income trades, or both.
Just like people buy insurance to protect against an auto collision or a tree branch falling on their house, traders can purchase insurance for their retirement assets. Decide what your number one focus is right now.
Do you want to develop and implement a hedging strategy for all or a portion of your retirement assets?
If you have a significant long position in a stock in your retirement accounts, you may want to consider a put option or a collar position around that stock. If your retirement assets are primarily invested in broad market exchanged traded funds, a put option on the S&P 500 Index could be a good choice.
Or, if you are looking for new income opportunities
during heightened market volatility, some traders utilize options on the VIX – the market's so-called "Fear Index." If you think volatility is going higher and the market is going lower, you may consider buying a call option. Volatility and market direction have an inverse relationship in typical market conditions.
Every day I scour the markets looking for income generating option trades that are easy to understand and follow.
If you'd like to see some of the actual trades I put on to generate a consistent income stream, check out my trading room today, with a trial offer. We can trade together. Join me today.
The Bottom Line
Don't panic. Volatility should not be feared. It opens up the door to immense opportunities. However, it is important to take the time to learn and understand any strategy you may want to employ. That's where I can help.
At SheCanTrade I have developed a series of lessons
across the spectrum for beginning, intermediate and advanced traders. I focus on a strategy that generates consistent income through options trading. I break down the complicated jargon in a way that everyone can understand and profit.
Market action is accelerating. As the old saying goes, stocks like to take the stairs up and the elevator down. Don't panic. I can help you prepare. Reach out and connect with me today.
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