Author: The INO.com Team

Markets Shake Off Disappointing Jobs Number

Posted on by The INO.com Team

The Labor Department said the U.S. added 49,000 jobs in January, slightly below the 50,000 payrolls expected by economists. The unemployment rate fell to 6.3%, better than projections of 6.7%. December's numbers were revised much lower, with the month posting a loss of 227,000 from the initial reading of 140,000 jobs lost.

After suffering their worst week in months, the major indexes will wrap up the week with five straight days of gains ending with their best week since November. The S&P 500 will post a weekly gain of +4.7%, the DOW +3.9%, and the NASDAQ will outperform with a significant gain of +6%.

The U.S. dollar continues to push higher with a weekly gain of +1% and trading back above $91 for the first time since November. This week's gain will mark back-to-back weekly gains for the dollar. Continue reading "Markets Shake Off Disappointing Jobs Number" →

The Fed's Role In GameStop

Posted on by The INO.com Team

All of the news articles and media commentary on the volatility in GameStop (GME) stock last week centered on the supposed war between retail investors who were buying the stock, putting a squeeze on those evil rich hedge-fund managers who had shorted the stock. And the Davids, at least for now, were beating the Goliaths. Good versus evil is always easy to understand and makes for a compelling story, especially when "the little guy" prevails.

Morality play aside, a lot of people were probably scratching their heads as to why some people would be so enthusiastic about buying stock in a company that appears to be 10 years behind the times, seeing as how its main business consists of selling or reselling physical copies of digital games even as the rest of the world has moved onto streaming. It also cast a lot of attention on short-selling, with many people receiving a crash course in the tactic.

However, it's also another example of how the Federal Reserve's super-loose monetary policy and 0% interest rates are distorting investor behavior. While retail investors on Robinhood and other platforms are driving up the price of what otherwise might be a stock headed in the other direction, we need to remember one of the reasons why investors are willing to make such outlandish bets like this.

It demonstrates the lengths some investors will go to make money because it's become difficult to do so in more conventional (i.e., safe) investments, such as quality stocks and bonds. It also reveals the almost devil-may-care attitude some investors have adopted, believing that the Fed will eventually ride to their rescue. Continue reading "The Fed's Role In GameStop" →

Stock Market Feels The Squeeze

Posted on by The INO.com Team

The DOW dropped more than 600 pts Friday to finish January with its worst week since October losing over -3.2%. The S&P 500 and NASDAQ couldn't avoid a selloff, with both indexes losing -3.3% and -3.4%, respectively. The reason for the losses, a short squeeze of all short squeezes.

It started on January 25th when a group of retail investors identified Gamestop Corp (GME) as a buy on the WallStreetBets Reddit forum. This group of day traders continued to encourage each other to pile into GameStop's shares and call options, creating a massive short squeeze that inflicted pain for hedge funds betting against the stock. So much so that the trading app, Robinhood, seized trading mid-week of GME stock as well as several other stocks. After resuming trading Thursday, Robinhood has been limiting the number of shares that the retail investor can purchase.

All told, the short-selling hedge funds have suffered a loss of nearly 20 billion year to date, including a nearly $8 billion loss on Friday as the GME kept ripping higher. Still, short-sellers mostly are holding onto their bearish positions, or they are being replaced by new hedge funds willing to bet against the stock. GameStop shares that have been borrowed and sold short have declined by just about 5 million over the last week, marking an 8% dip in the short interest, according to S3. Most of the short-covering occurred on Thursday when the stock fell for the first time in six days, according to data from S3 Partners. Continue reading "Stock Market Feels The Squeeze" →

Why You Should Prepare For A Jump In Volatility

Posted on by The INO.com Team

By Elliott Wave International

Stock market volatility is like a roller-coaster ride -- extreme ups and downs.

However, unlike thrill-seeking roller-coaster riders who often rise from their seats after the ride with a smile, investors often exit with a frown.

That's because extreme volatility after a stock rally often ends with prices much lower.

Having said that, many investors -- even professionals -- do not anticipate a jump in volatility right now.

Indeed, the San Diego Union-Tribune asked the senior principal of a financial advisory firm on Jan. 15:

Will 2021 be a volatile year for the stock market?

He replied:

Continue reading "Why You Should Prepare For A Jump In Volatility" →

Options: "Rolling" Option Trades

Posted on by The INO.com Team

When engaging in options trading, it is only a matter of when, not if, a trade will move against you and challenge your strike. Despite being disciplined and following the 10 rules in options trading, trades will be challenged, and some losses are inevitable. However, some of these potential losing trades can be managed effectively to circumvent losses altogether via rolling. Given the right set of circumstances, trades can be rolled by closing out the pending trade for a debit and subsequently opening a new trade with a later date and further out-of-the-money strikes for an overall credit.

Options trading enables traders to define risk, leverage a minimal amount of capital, and maximize return on investment. Options trading can create smooth and consistent portfolio appreciation without predicting how the market will move. Options enable one to generate consistent and durable monthly income in a high probability manner in both bear and bull market scenarios.

An agile options-based portfolio is essential to navigate pockets of volatility and mitigate market downdrafts. The September correction, October nosedive, and election volatility into November are prime examples of why risk management is paramount. Over the past ~9 months (May-January), 190 trades were placed and closed. An options win rate of 97% was achieved with an average ROI per winning trade of 7.7% and an overall option premium capture of 82% (Figures 1 – 4). The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk. Rolling option trades can be part of the overall options strategy to circumvent losses and mitigate risk.

Options
Figure 1 – Overall option metrics from May 2020 – January 18th, 2021
Continue reading "Options: "Rolling" Option Trades" →