Election Volatility Is Crushed — Stocks Soar

Dear New Money Club Member,

Election night is behind us, but the battle for the White House is heating up. Still, regardless of the results, the market is refocused on more stimulus.

Stocks are soaring and lifting the S&P 500, and the Nasdaq is a stone’s throw from all-time highs.

Now, the fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX), is holding at 29. This is a decrease of 31% since Friday, which is known as a volatility crush.

Unfortunately, this crush affected the gains we had in our Wells Fargo (NYSE: WFC) calls. But we have time here. Let’s let things shake out before we make our next move.

Portfolio Update

On Monday, we issued an alert to:

Buy to Open Wells Fargo Company (NYSE: WFC) Nov. 20, 2020, $24.50 calls (WFC201120C00024500) up to $0.22 per contract or better, for the day.

Right now, we’re holding:

  • Hostess Brands Inc. (Nasdaq: TWNK) Dec. 18, 2020, $15 calls (TWNK201218C00015000).

  • Wells Fargo Company (NYSE: WFC) Nov. 20, 2020, $24.50 calls (WFC201120C00024500).

Let’s keep focused and let the market come to us. And I’ll be keeping you updated every step of the way.

Your Questions, Answered!

The mailbag is full, so let’s get to your most pressing questions…

“Hi, Joshua,

What if a trader is buying calls or puts to hedge against a stock position?” — Dave R.

Great question! Our proprietary New Money Monitor checks the equity markets for block stock trades that may have executed at the same time.

If we see blocks of stock tied, it could mean a stock was swapped out for calls. Or it could be a non-directional play. Because there are more unknowns with that, we don’t consider it a New Money trade.

Our next question come to us from J.P., who wrote:

“I would like to understand what the next step that I will be taking on my purchase of Wells Fargo (WFC) options looks like?

A. Will I be receiving an email on the next move?

B. What will be my financial obligations, if any?

C. What is the effect if I am ‘out of the money’ or ‘in the money’?” — J.P. 

Thanks for writing in! Since these options were under $0.50, we risked the whole premium paid. But our WFC calls are in play right now and don’t expire until November 20.

These are considered “out of the money,” and they would increase in value if the stock increases. If that happens, these calls would become “in the money.”

But rest assured: When it’s time to sell, I will shoot you an email alert.

Here’s our final piece of reader mail for today:

“Why are my positions in the red after I enter?” — M.P.

Considering the nature of options, we’ll often have red on our screen while we wait for trades to develop. These are supercharged instruments. That’s why they can quickly go from being down to big gainers.

As I like to remind everyone, patience and persistence are key. I promise to keep a close eye on all of our positions and will let you know when it’s time to take action.

That’s it for me today, but be on the lookout for our next profit alert!

And if you want your questions answered next week, make sure you email them in today at questions@newmoneycrew.com.

Sincerely,

Joshua M. Belanger

New Money Club