Author: The INO.com Team

Was This A Bear Market Rally?

Posted on by The INO.com Team

Stocks are ending the week on a sour note after experiencing a three-day rally mid-week that saw the three major indexes gain upwards of +13%. But was this a bear market rally? Or can the upward momentum continue?

What is a bear market rally, you ask? A bear market rally is a sharp short-term increase over days to weeks within a longer-term bear market. Often investors will see this short rally and think that a bottom has been put in and that the bear market is over. However, investors should be cautious as the downward market action will often return, catching investors out.

You may know these rallies by other names such as a "Sucker Rally" or a "Dead Cat Bounce."

The bear market rallies that began in 2000 and 2007 both gained more than 20% before coming to an end. The most massive bear market rally came Continue reading "Was This A Bear Market Rally?" →

Don't Be Remiss - Start Buying Stocks

Posted on by The INO.com Team

The coronavirus (COVID-19) epidemic has pummeled stocks and has caused a complete collapse of the entire market. Broader indices such as the S&P 500, Nasdaq, and Dow Jones have lost over 20% of their value, while most individual stocks have lost 20%-70% of their market capitalization. Airlines, cruise lines, and casinos have been hit particularly hard. Other stocks have been hit due to the market-wide meltdown, and many opportunities have been presented as a result. I'd be remiss if I didn't use this unique opportunity to start buying stocks and take long positions in high-quality companies. Throughout this market sell-off, I have begun to take long positions in individual stocks, particularly in the technology sector and broad market ETFs that mirror the S&P 500, Nasdaq, and Dow Jones.

The Financial Crisis and 1987 Black Monday Comparators

The broader market sold off in a historic downward move as the coronavirus has spread outside of China throughout the rest of the world, effectively shutting down economic activity on a grand scale. During the last week of February, the Dow Jones and S&P 500 sank by 12% and 11% for the week, respectively. This marked the worst weekly performance since the financial crisis for the markets. The Dow posted its biggest one-day loss ever during the week and tumbled into correction territory, down more than 10% along with the S&P 500 and Nasdaq.

As the markets moved into March, the S&P 500 officially closed in a bear market on March 12th, down more than 26% from its record high set just last month. This ended the historic 11-year bull market run. The Cboe Volatility Index (VIX) jumped to more than 76 and hit its highest level since 2008 (Figure 1). On March 12th, The Dow Jones and S&P 500 had its worst drop since the 1987 "Black Monday" market crash, when it collapsed by more than 22% (Figure 2).

This market-wide meltdown is in response to the negative impact that COVID-19 will likely have on the global economy and corporate earnings. A wide array of companies have already issued warnings about their upcoming quarterly earnings. This placed a damper on the outlook for the markets, especially with rising concerns Continue reading "Don't Be Remiss - Start Buying Stocks" →

Crude Oil Plunges -23%

Posted on by The INO.com Team

Crude oil is trading below $20 after plunging over -23% on the final day of trading this week. In early trading, crude oil had been up trading higher, hitting a high of $27.89 before plummeting into the close. The reason for the plunge, social distancing, and border closings due to the coronavirus.

The coronavirus pandemic is demolishing crude oil demand in the United States as authorities encourage people to stay home and work from home while also discouraging domestic travel. Adding to that mandate is the closing of the U.S. - Canada, and U.S. - Mexico borders. Demand by the major economies in Europe, ranging from Italy, Spain, and France, are locked-down and unable to travel within their own countries and have advisories against traveling elsewhere. Continue reading "Crude Oil Plunges -23%" →

Stocks Surge To Close Out The Week

Posted on by The INO.com Team

After posting the worst single day since 1987, the stock market bounced back with the best single day since 2008. Stocks ended the week with a furious and aggressive move higher into the close Friday with the DOW gaining 1,985 points or +9.3%. The S&P 500 and NASDAQ also surged +9.3% for the day.

However, that move higher did little to erase the weekly losses with the DOW closing down -10.3%, S&P 500 -8.7%, and the NASDAQ losing just over -8%. Why the extreme move in the final 30 minutes of trading? President Trump's news conference.

Speaking from the Rose Garden, Trump said, "To unleash the full power of the federal government, I am officially declaring a national emergency." Referring to that as "two very big words," he said it would allow him to quickly get $50 billion to states, territories and localities "in our shared fight against this disease."

With Dr. Anthony Fauci, Vice President Mike Pence, Health and Human Services Secretary Alex Azar and other members of his coronavirus task force members standing behind him, Trump said, "No resource will be spared - nothing whatsoever." Continue reading "Stocks Surge To Close Out The Week" →

Capitalizing On The Coronavirus Induced Volatility

Posted on by The INO.com Team

The Coronavirus has become the black swan event that has materialized into worldwide hysteria. The spread of viruses globally has halted supply chains, commerce, retail, and specifically the travel and leisure sector. The Coronavirus has been the catalyst for the overall indices to drop double digits or ~13% over the course of roughly a one week period in late February. The coronavirus event induced extreme global market volatility that hasn't been seen since Q4 of 2018. This extreme volatility provided options traders with a vast landscape of stocks that possessed rich option premium pricing.

As volatility spikes and stocks sell-off, options traders can sell options and collect rich premium income in a high probability manner with a statistical edge and expected outcomes. Even better, options can be sold with defined risk while leveraging a minimal amount of capital to maximize return on investment (ROI). Whether you have a small account or a large account, a defined risk (put spread) strategy enables you to leverage a minimal amount of capital, which opens the door to trading virtually any stock on the market.

Volatility - Options Trading Edge

The Coronavirus injected volatility across the entire market throughout February and into early March. This volatility resulted in rich option premium pricing, which enabled options to be sold on a wide array of uncorrelated tickers that can be spread over various expiration dates.

Selling put spreads is a great way to leverage a minimal amount of capital while maximizing returns. A put spread is a type of options trade that risk-defines your trades and involves selling and buying an option. These types of trades maximize return on capital; often, a ~10% realized gain over the course of a month-long contract with an ~85% probability of success. The required capital is equal to the maximum loss, while the maximum gain is equal to the option premium income received. Continue reading "Capitalizing On The Coronavirus Induced Volatility" →