Author: The INO.com Team

COVID-19 - An Agile Options Strategy

Posted on by The INO.com Team

COVID-19 has become the black swan event that has materialized into a worldwide economic halt. The spread of the virus globally has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail, with others in the crosshairs. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been since the Financial Crisis.

Although options trading provides a margin of downside protection and a statistical edge, no portfolio is immune from the wreckage when hit with a black swan event. Thus, proper portfolio construction is essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. Thus, an agile options-based portfolio is essential. The COVID-19 pandemic is a prime example of why maintaining liquidity is one of the many keys to an effective long-term options strategy.

An Agile Options Strategy

Risk management is paramount when engaging in options trading. A slew of protective measures should be deployed if options are used as a means to drive portfolio results. When selling options and running an options-based portfolio, the following guidelines are essential: Continue reading "COVID-19 - An Agile Options Strategy" →

Flattening The Curve

Posted on by The INO.com Team

While the stock market is coming off one of it's best months in over 30 years, I can't get the idea of the "flattening the curve" out of mind. Yes, the S&P 500 gained +12.7% for April, its third-biggest monthly gain since World War II. The Dow gained +11.1%, its fourth-largest post-war monthly rally, and its best month in 33 years. Not to be outdone, the NASDAQ outpaced both the DOW and S&P 500 by posting a monthly gain of +15.5% for April, that's its biggest one-month gain since June 2000.

All of that sounds great, right? But even with these big monthly gains, we are still roughly -16% off the record high for the S&P 500, and if you take a look at the weekly charts, you'll see that the stock market is flattening the curve.

On a weekly level, all three indexes will post weekly losses, for the second week in a row. Talk about stumbling across the finish line. Clearly, all the gains were made in the early part of April before the earnings season ramped up. Continue reading "Flattening The Curve" →

Crude Oil Dominates Market Action

Posted on by The INO.com Team

Crude oil was the determining factor for market direction all week. It all started four days ago when crude oil traded into negative territory for the first time ever, trading down negative $37.63 a barrel, a decline of some 305%, or $55.90 a barrel. That drove the stock market down early in the week.

However, as crude oil tried to bounce back the rest of the week, it failed to wipe out its early week losses, but it wasn't enough to end the week in the green for crude oil or stocks for that matter. Continue reading "Crude Oil Dominates Market Action" →

Is The Chinese Economy A Predictor For The U.S.?

Posted on by The INO.com Team

The Coronavirus originated in and hit China first, so it should be expected that the Chinese economy could be used and will be used as a predictor for the U.S. economy moving forward. After all, we are talking about the two largest economies in the world.

Since the mid-1970s, the Chinese economy has had more than four decades of unbroken gains, an incredible run, increasing its domestic economy by roughly a hundredfold and transforming the global economy in the process.

But that winning streak came to a sudden and shocking end Friday. China reported a -6.8% year-over-year contraction in its economy for the first three months of 2020. That's the first quarterly decline in the gross domestic product since official record-keeping began in 1992 and likely the first since Mao Zedong died in 1976.

That should be quite a warning to the U.S., especially after U.S. retail sales Continue reading "Is The Chinese Economy A Predictor For The U.S.?" →

COVID-19 - Adding Speculative Positions

Posted on by The INO.com Team

Now is as good time as any to put on some speculation plays because this COVID-19 black swan event may be a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The broader indices have shed approximately a third of their market capitalization into April. Some individual stocks directly related to the COVID-19 pandemic have lost ~50% to well over 80% of their market capitalization. Investors have been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Throughout this market sell-off, I have begun to speculate on a variety of names with small amounts of capital. Let's not confuse speculation for investment; thus, these trades are purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%.

Evaporated Market Capitalization

The COVID-19 pandemic has destroyed entire industries and many individual stocks. Anything related to travel, leisure, retail, industrials, and discretionary spending has been cut by 50% or more. Companies are being tested like no other time in history where the entire economy is at a standstill under the COVID-19 coast is clear. Amid this economic wreckage, speculation can potentially Continue reading "COVID-19 - Adding Speculative Positions" →