It’s Coming – “The Weekend Effect” on Steroids

Ever noticed that the market tends to move higher on Fridays than it does on Mondays?

You’re not crazy – it’s a thing. It even has a name: the weekend effect.

And it’s a theory that’s been around since the early 70s, when a guy named Frank Cross wrote an article titled, understandably, “The Behavior of Stock Prices on Fridays and Mondays.”

Since then, Cross’ theory has been proved true – but no one is totally sure as to why.

Some argue it’s because of individual investors’ trading behavior. I like that argument – it proves the average joe’s ability to move the market, which is exactly what we’re after here at Profit Takeover.

Others point to companies’ tendency to release bad news after the market closes for the weekend, so that stocks have to wait until Monday to react.

But I think it goes a little deeper than that.

Let’s look at an option. Two things make up an option’s price, right? Intrinsic value and time value. And that time value decays every day… whether the market is open or not.

So, your option decays seven days a week. But you only trade five of those days.

And next week, you’ll only trade four.

The weekend effect is going to be on steroids next week – but that’s good news for us.

And here’s why…

Market makers aren’t going to simply close up shop on Friday night and walk in on Tuesday morning with all their options down three days of decay.

That’s why, throughout the week, options tend to decay more than you’d expect daily. In fact, in a normal week, you’ll see about 1.5 additional days of decay on an option.

So, looking solely at time value, your option contract will be worth significantly less on a Monday morning than the Friday afternoon prior.

During a holiday week, however, like the one we’re about to enter, you’ll see even more decay than usual.

It’s like the weekend effect on steroids.

And it sounds bad, right? But get this – the VIX doesn’t know market makers are doing this to options.

Instead, the VIX thinks that options are losing volatility. So, next week, I’m willing to bet that the VIX goes down… big time.

And that’s exactly why we’re forecasting a sub-15 VIX by the Fourth of July.

The Only Trade You’ll Ever Need

I want to take a minute to introduce you to Kenny Glick.

If you’re a regular viewer of Money Morning Live, then you know Kenny.

And if you don’t, then you’re in for a treat…

Kenny is our resident expert on the Volume-Weighted-Average-Price, otherwise known as VWAP, which Kenny refers to as the indicator of all indicators.

In fact, he claims it’s the only trade you’ll ever need.

And he just started his very own daily newsletter, This Is VWAP.

Every day the market’s open, Kenny is coming at you with VWAP trading mechanics, knowledge bombs, chart patterns, top stocks… I could go on.

Basically, it’s all the materials you need to master the art of VWAP domination.

Mark’s Watchlist

1. Apple Inc. (Nasdaq:AAPL)

FAANG may be falling from grace, but AAPL remains a strong stock today. And with the CBOE Equity VIX on Apple (INDEXCBOE:VXAPL) near a year-to-date low, it’s a smart time to buy bullish options on this name.

2. Intel Corp. (Nasdaq:INTC)

While we’re in the tech sphere, let’s talk Intel. This stock is fast-approaching $60 – but now’s the time to get in, so you can ride that bullish wave to profits.

3. Walmart Inc. (NYSE:WMT)

As Amazon’s biggest competitor, WMT is one of my favorite retailers. The stock is up nearly 15% over the past year – but it’s still below its all-time high of $153.66. At about $137 as I type, this one’s got room to run.

4. ContextLogic Inc. (Nasdaq:WISH)

WISH has been a popular stock as of late, and it’s easy to see why. The ecommerce platform is gaining steam fast. It’s up 67% in the past month.

5. Walt Disney Co. (NYSE:DIS)

I like DIS because it’s an old stock, when you’re looking at its traditional parks. But it’s also a stock dabbling in the “new,” with its successful streaming service. Year-to-date, however, DIS is down. But all that means to me is that it’s got a ton of room to run higher, back to its $203 all-time high.

6. Transocean LTD (NYSE:RIG)

Yesterday, we added a new trade to the Profit Takeover portfolio on my favorite cheap oil stock. And you can check out where it stands today right here.

Today’s Impact Money Trade

Today’s impact money trade is actually yesterday’s biggest option trade – and it’s on General Electric Co. (NYSE:GE).

Click To EnlargeSomeone bought a massive block of 50,000 January $14 calls – betting on a pop to $14 by early next year.

At just $1, this is a fairly cheap and easy trade for the average trader to piggyback.

And that’s all for today. Be sure to drop all your questions right here for tomorrow’s Ask Me Anything issue!

Until then,

Mark Sebastian

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