Business

Your action plan to take advantage of a stock market trough

Recent sales have been as brutal as sustained, less than a few days. Many investors are scrambling to find out how much "they" can get.

It is not a bad thing.

Panic is a perfect opposite indicator.

History shows very clearly that this sale will ultimately prove to be a monumental buying opportunity – perhaps even, dare I say it, a generational piece like the one you see once or twice in your life. Investment.

Start thinking about this possibility now, and you will have a huge advantage when the time comes. You just need the right tactics.

Here are three smart steps to help you get started and seize the biggest opportunities this market has to offer

Use these strategies to take advantage of the bottom

The first thing you want to focus on is when to make your move.

I suggest looking at the VIX, the market volatility index, which you may have called the fear gauge. Look for a sustained fall using an indicator like "Relative Range", which I will show you in the following table.

Values are less important than breaking above statistical norms and the highest of 49.48.

Figure 1 Fitz-Gerald Research Analytics, LLC

As you can see, the volatility has far exceeded anything that looks like rational behavior under normal statistical conditions.

The "why" doesn't really matter, so don't spend a lot of mental energy on it. Just that at what happened is what you want to focus on.

The VIX index, in case you don't know it, is a calculation measuring the expected volatility of the US stock market based on real time prices at mid-quote S&P 500 Index (SPX).

Higher VIX readings imply greater expected movement in the S&P 500, while lower VIX readings imply smaller movement.

Generally speaking, VIX readings do not stay above normal (which in recent years has been low in mid-teens) for long periods of time, for statistical reasons I will enter a another period. What you need to know is that high VIX readings can drop quickly.

It's because of something called "nasty reversion". This essentially signals a return to the mean each time the VIX moves strongly in both directions.

Keep in mind, however, you will want to be selective, as the VIX may increase at times that do not correspond to a strong sale or a possible bottom. These are signals that you don't want to take. It can also fall even if the anxiety remains high, as it is currently the case.

Generally speaking, abnormally high VIX readings can be used to judge the potential for a major market reversal … which, in my opinion, based on what I have just outlined , may be closer than many panicked people think.

And here's what you do to play it …

Business Idea # 1: Currency Buying Options

Aggressive traders could exploit this by buying S&P 500 "money" (ATM) calls, ATM SPX buy options, because Gamma – a Greek option measuring price sensitivity – is the highest .

Conventional thinking is to buy "out of the money" – OTM – options, but I'm not a fan of that in general because this trade is meant to capture as much movement as possible. as quickly as possible.

Keep the risk low by using a smaller than normal position size before moving. This trade will lose money quickly if the markets continue south. I suggest a time-based stop, rather than the usual dollar or percentage versions that we talk about most of the time.

You are also do not bad luck if you don't like the options or just don't know them.

Aggressive investors might consider munching on the SPY, an exchange-traded fund that tracks the S&P 500, while using average dollar costs to control your entry and risk. There is also a leveraged ETF like the Direxion SHS ET / Daily S&P 500 Bull (NYSE: SPUU), which moves 2x to any corresponding movement in the S&P 500 if it's more your "speed".

It is also a pony on a ride, so the same risks apply. Only use money that you can afford to lose if the markets have other ideas.

Business idea # 2: buy LEAPs

Many people speak of being annoying, but very few really meet my definition.

Those few people who buy even when every bone in their body tells them not to – or in the case of some great traders I know, they are physically sick.

Which is: Last week certainly qualifies. The two individuals I can think of fell ill and then started buying Apple, Alibaba and other major tech stocks using the LEAP buy options.

LEAP stands for "long-term equity anticipation securities" – essentially long-term options with expiration dates generally greater than one year. Doing so, instead of buying stocks that interest them directly, costs less and can generate super attractive profits in the event of a rollover.

For example, Apple Inc. (NASDAQ: AAPL) was beaten to $ 268.25 when struck. Buying 100 shares will cost you $ 26,825. However, a AAPL June 17, 2022 $ 260 appeal (AAPL220617C00260000) will cost you only $ 5,600, which is $ 21,225 less.

Suppose Apple climbs to $ 400 by June 2022, as I think. A stock buyer would no doubt be happy, enjoying the glow of a 49.11% return. But the LEAPs buyer would look at a much more attractive 64.68% for each LEAPs call purchased.

There are however some caveats.

Buyers of LEAP are faced with something called temporal decay, which means that the price value of the option they bought decreases as the option expires. At the same time, they will have to forgo dividends that would otherwise be in their pocket if they bought the stock outright.

Not bad huh?

Business idea # 3: buy "buyout" shares

Join the conversation. Click here to go to comments …

About the author

Keith Fitz-Gerald was chief investment strategist for the Silver morning since 2007. He is a seasoned market analyst with decades of experience and a very precise history. Keith regularly travels the world in search of investment opportunities that others do not see or understand yet. In addition to the section The Money Map report, Keith runs High speed profits, which aims to enter, target earnings and come out clean, and it is also the founding editor of Benefits in a straight line, a service dedicated to revealing the "dark side" of Wall Street … In its weekly Total wealth, Keith has divided his more than 30 years of success into three parts: trends, risk assessment and tactics, which means the exact techniques for making money. Registration is free at totalwealthresearch.com.

… Read the full biography

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