Dear Profit Takeover reader,
Some stocks highly correlate to the market – and there’s a simple term for this market exposure phenomenon…
It’s one of my favorite option Greeks: Beta.
Beta is the measure of a stock’s movement relative to the overall market.
Today, I want to take a practical look at what happens to our portfolios when the market goes up or down.
In this clip I explain why you need to understand beta – and how to utilize it practically to your advantage:
Sometimes, beta works in overdrive – and it creates some of the most volatile stocks in the market.
If you are bullish or bearish the market, you can buy options on these stocks and they usually move how the market does but in a more extreme way.
So, while they are more risky, they could pose a much bigger profit potential.
These are called high-beta stocks and their volatility is higher than the overall market moves.
Any stock that has a beta rating of over 1.0 is considered high-beta.
One example I really like to watch and trade often is DVN – Devon Energy Corp (NYSE:DVN)
DVN’s beta is 2.47 which means it is 2.47 times more volatile than the overall market.
If I am looking to make big profit and I have a confident idea of which direction the market would move, I look to high-beta names.
Until next time,
November 10 2022