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Why It’s Best to Trade Short-Term Options Flow in Volatile Markets

by | Sep 23, 2022 | Options

Another Federal Open Market Committee meeting has come and gone… And judging by the tape, it went as bad as we expected.

All I can say is thank the stars for cheap, out-of-the-money (OTM) options!

Volatility exploded as soon as Federal Reserve Chair Jerome Powell took the mic Wednesday. And try as they might, the bulls haven’t been able to sustain a rally since.

The S&P 500 and Nasdaq both shed more than 4% this week while institutional investors moved to the sidelines and who can blame them?

What large trader or insider wants to put a lot of capital to work when you have the Fed dropping tape bombs and creating so much uncertainty?

Where are we going from here? No one can say. 

But I don’t concern myself with where the market is heading.

I just trade what’s in front of me. And right now that’s short-term, cheap, OTM options…

New Money Crew Strategies Score Big Wins in Ugly Market

With markets this volatile, we want to get in, grab what we can and get out before the rug is pulled.

But up or down, as long as the market is trending, there’s money to be made!

That aggressive mindset continues to lead the New Money Crew strategies to stellar wins…

Wiretap Alerts kicked the week off with another set of winning trades with puts on Micron Technology Inc. (Nasdaq: MU), and calls on Amazon.com Inc. (Nasdaq: AMZN) and Mattel Inc. (Nasdaq: MAT). That pushes our lifetime winning percentage back above the 70% mark as we roll into our one-year anniversary!

Weekly Blitz Alerts and Heavyweight Trade Alerts added more upside gains with Ford Motor Co. (NYSE: F) and Netflix Inc. (Nasdaq: NFLX), respectively…

Not to be outdone, Alpha Sweep Alerts made out like a bandit as markets puked with downside plays…

We closed out the last leg of our Macy’s Inc. (NYSE: M) puts for a 30%* total gain, and reeled in a 72%* return on Marathon Oil Corp. (NYSE: MRO) overnight — BANG!

Though M was an outlier, these winning trades came playing cheap, short-term, OTM options

Cheap, OTM Options Transform Small Moves into Monsters

The reason I love to target these options just out of the money is two-fold…

First, they’re less expensive than their in-the-money counterparts. Cheaper options prices allow us to better control risk with our position sizing…

Also, when options are cheap, smaller price moves translate to bigger percentage gains.

Second, options a strike or two out of the money are more sensitive to changes in the price of the underlying stock than in-the-money options.

Combine that with shorter-term expirations, and traders can put themselves in a position to make the most of moving stocks — which is why our strategies regularly target trades like these.

Let’s take a look at the weekly chain for International Business Machines Corp. (NYSE: IBM) options expiring Friday…

With the stock trading down to $126.53 on the day, the in-the-money, $122 calls have dropped 4.7%, and the losses quickly get bigger the farther we move out of the money we go.

The same is true when the underlying stock is gaining. Check out the clip above and let’s take a look at some real-world examples of cheap, OTM options, and this market phenomenon.

P.S. There’s been something on my mind that I’ve been dying to share…

Something that can be used by traders and investors of all skill levels. 

It doesn’t matter if you’re a day trader, options trader, swing trader, a casual investor or if you’re just getting started in the stock market.

It spits out buy and sell signals based on the real reasons stocks move up and down…

And I think it could influence your trading month in a BIG way. 

See My Secret

*Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.

WRITTEN BY<br>Lance Ippolito

Lance Ippolito

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