VIX Traffic Light

For weeks, I’ve been forecasting a sub-15 VIX by the Fourth of July.

And that’s exactly what we got. On Friday, the VIX briefly touched 14. And I think we’re heading even further south from here.

In fact, before the month is up, I wouldn’t be surprised if the VIX went as low as 12.

Now, where’s the money? You don’t have to short the VIX to profit off of this movement.

With volatility getting crushed as the broader market continues to rise, we’re getting a hurricane of cheap options.

Top Three Sectors for Cheap Options

Remember – there are two main factors that make up an option’s price: 1) time value; and 2) intrinsic value.

Time value is exactly what it sounds like. An option loses value the closer it gets to its expiration date.

Intrinsic value refers to an option’s equity, and the only things that influence it are an option’s strike price versus the underlying stock’s price. Only in-the-money options have intrinsic value.

But there’s a third factor – one that’s much less predictable – that affects an option’s price. And truthfully, it’s the most important one.

If you haven’t guessed yet, it’s implied volatility, or IV for short. And it’s simple:

An option with high IV is going to be more expensive.

Low IV? That means cheap options.

With the VIX dropping to 12 this month, I’ve got my eye on three sectors loaded with dirt-cheap options.

  1. Technology

Q2 earnings are coming for big tech at the end of this month. And ahead of earnings, options are incredibly low-cost.

Now, I don’t like “playing earnings.” Frankly, it’s a crapshoot. Especially when you look at big tech’s performance in the past. Even after great reports, these stocks tend to get crushed. “Buy the rumor, sell the news” – whatever you want to call it, the “money time” for these stocks are the weeks into the report, not after.

Right now, IV is low on these options. But IV tends to rise into a report – making now the perfect time to play these trades, so that you can profit on rising option prices later.

I’ve been talking about Apple Inc. (Nasdaq:AAPL) for a bit now. The VIX on Apple, CBOE Equity VIX ON Apple (CBOEINDEX:VXAPL), is near its lowest point of the year:

VXAPL YTD, taken from Google Finance

This means that IV in AAPL options is cheap. And I’m long this FAANG name into its earnings.

Stay tuned for more on AAPL in today’s impact money trade…

  1. Oil

This one’s obvious, right?

Last week, I went live to show you exactly how to play rising oil prices. If you missed it, you can catch a replay right here. I even dropped a new trade rec on one of my favorite oil stocks, Transocean LTD (NYSE:RIG). You can track that trade’s performance right here – it’s already up more than 13%.

But since our live webinar, oil prices have risen even higher. WTI almost hit $77 a barrel overnight and Brent crude is back at its 2018 highs. Domestic oil companies and international ones are killing it. Frankly, there are few oil names I don’t like, but here are a few of my favorites:

  1. Exxon Mobil Corp. (NYSE:XOM)
  2. Chevron Corp. (NYSE:CVX)
  3. Energy Transfer LP Unit (NYSE:ET)
  4. Marathon Oil Corp. (NYSE:MRO)
  5. Hess Corp. (NYSE:HES)
  6. Valero Energy Corp. (NYSE:VLO)

Right now, the VLO July $80 calls are only $1.00. That’s $100 for a single contract – and a great, cheap way to play rising oil.

  1. Healthcare

The Healthcare Select Sector SPDR Fund (NYSEARCA:XLV) is up more than 12% year-to-date. On Friday, it hit an all-time high. What’s pushing this ETF higher?

Well, let’s look at its top three holdings: Johnson & Johnson (NYSE:JNJ), UnitedHealth Group Inc. (NYSE:UNH), and Pfizer Inc. (NYSE:PFE).

One could argue that two of those companies – JNJ and PFE – are two of the most important companies in the world right now.

Clearly, healthcare is a sector ripe with opportunity – and those opportunities come in the form of cheap options.

Today’s Impact Money Trade

AAPL is trading higher today after analysts at JPMorgan raised their price target on the stock to $170.

And there’s clear big-money interest in this name. Total call volume is running at three times the normal today:

Click To Enlarge

And a big block of that volume is coming from the 9K+ trades we see on both the weekly and the July calls:

Click To Enlarge

We aren’t the only ones interested in AAPL. And this big-money interest is going to push the big tech stock up into earnings as well.

That’s all for today, folks, but stay tuned.

We’ll have a new money-making article every day this week – plus, I’m going LIVE again. This time on Thursday at 10:30 a.m. ET.

More details on that later. But for now, be sure to bookmark this page – that’s where you can watch on Thursday at 10:30 a.m.

Until tomorrow,

Mark Sebastian


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