Dear Profit Takeover reader,
I’m the volatility guy –
Understanding how to trade volatility has made me (and the people who trust me with their money) serious profit over the past couple of decades.
And it has been my goal to help retail traders understand these volatility “secrets” so they can profit too.
So when I see an opportunity like this, I have to share it.
On Wednesday, CJ and I held an energy event to discuss the current moves we are seeing in energy, and what we expect to happen next in the energy sector.
Did you miss it? Watch the replay here:
Energy names WERE the FOMO trades of the first half of 2022… but now energy names will be divided into the winners and the losers…
The volatility of energy is fairly high right now, and could move even higher – which means trading energy could be MASSIVELY profitable.
Simply explained, volatility is the rate at which any particular stock moves or is expected to move –
But there are also ENTIRE TICKERS based on volatility of several stocks or an entire index or something even more specific…
For instance, the VIX is the CBOE Volatility Index based on the S&P 500 Index options.
UVXY is an ETF that corresponds to one and one-half times (1.5x) the daily performance of the S&P 500 VIX Short-Term Futures Index.
There’s even a volatility index for crude oil…
OVX is the CBOE Crude Oil Volatility Index based on the specific variance of options on the USO ETF.
“That sounds complicated and mathy… why should I care?” – you might ask
And the reason is…
If you trade options, the more a stock moves in the direction you are expecting – before the option expires – the more profit you stand to make.
We want to trade options on names that MOVE.
Volatility is the enemy of investors, but for traders, it’s a ripe fruit bursting with opportunity.
As an exclusive peek, I want to show you my watchlist that shows a scan of tickers with potentially profitable volatility:
This scan is important because it shows tickers with cheap options AND it gives me vital information about the Historical Volatility, the Implied Volatility, volume, and interest that I can use to make option recommendations.
When HV is HIGHER than IV, it means the options can be considered “cheap” since they are trading at lower prices than they have historically.
I can also see immediately how the flow of money is influencing the prices of options. When these numbers are positive, it means option buyers think there is more volatility coming soon, when they are negative, it means buyers expect that prices will move less rapidly than they have in the past few weeks.
What jumps out at me is that ALL these numbers are negative. ALL of them! This tracks with the way the VIX is falling, but it also tells me options are getting relatively cheaper. That means there are likely to be some excellent, low-cost option opportunities ahead. I can use these data to see where the opportunities ARE, and where they are not.
So for example, ABNB has an IV number well below its HV number. Compare that to AMZN where the two numbers are a lot closer together. Just at a glance, I know I’m better off looking at ABNB. That’s just a taste of how I use this.
Today I found a play I liked in VZ during the Profit Revolution.
Here’s VZ in the wallstreet.io software – free for all members of the Profit Revolution:
Image from wallstreet.io
The green line shows the 10-day HV and the red line shows the 30-day IV….
As you can see, since the HV10 is HIGHER than the IV30, it’s a great time to BUY options.
I think VZ is heading higher, so we found a call play for under $1.
This is the type of volatility analysis I do every day in the Profit Revolution – and I hope it helps you understand why I rely on volatility as a profitable indicator while trading options.
Until next time,
Founder, Profit Takeover
July 08 2022