New Month, New Highs

Dear New Money Club Member,

The buying mania continues…

And stocks are skyrocketing to new all-time highs!

We’ve been watching the S&P 500 and Nasdaq-100 tiptoe higher the last few weeks, which had many traders forecasting a stall-out.

But there’s one thing I keep on the top of mind — something I learned from my days on the trading floor. You never want to short a dull market … especially during unprecedented times. 

What’s got my attention is that volatility is higher on today’s rally. The fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX), is holding at 26. That’s four points higher than last week. 

This could be because market participants are buying stocks — because they have to put money to work while also buying market protection.

Typically, we see an inverse relationship when stocks rise and volatility decreases. So what we’re seeing now is very remarkable. 

And as a quick reminder: We’re headed toward an extended weekend with markets closed this coming Monday in observance of Labor Day. So make sure to watch your inbox for next week’s trade on Tuesday. 

Portfolio Update:

On Monday, we added our newest position:

  • Buy to open Energy Transfer LP (NYSE: ET) Sept. 18, 2020, $6.50 calls (ET200918C00006500) up to $0.20 per contract or better, for the day.

Right now, we’re holding:

  • Nordic Amer Tankers (NYSE: NAT) Oct. 16, 2020, $5 calls (NAT201016C00005000).
  • ANGI Homeservices Inc. (Nasdaq: ANGI) Sept. 18, 2020, $15 calls (ANGI200918C00015000).
  • Energy Transfer LP (NYSE: ET) Sept. 18, 2020, $6.50 calls (ET200918C00006500).

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.

“On Monday I bought your recommended ET September options for around $0.20. I noticed the price has dropped since then. Is now a good opportunity to buy more options contracts?” — Steve N.

That's a great question to answer this week!

As an options trader, oftentimes we’ll enter into a new trade only to watch it decline double digits in short order.

To some, it's discouraging. And to others, they see it as an opportunity.

One of the great things about options is that they move fast, which is why I like to use them to generate big weekly gains.

One of the things to consider, even if the options contract declines in value, is that these are only paper losses. And with the markets trading as they are, pullbacks could be seen as a great buying opportunity.

The challenging aspect of trading options is that there are several moving parts that dictate price. That means it’s very easy for newer traders to get swept into the deep end of the pool.

With our approach, sometimes we’re purchasing options contracts that expire in a few weeks. That’s because we’re following New Money bets that believe a big move will occur in that time frame. 

For instance, our ET September 18, 2020, $6.50 calls expire in 16 days. Ideally, we want this move to happen in the next few days. As more time passes, this decreases the premium we've paid. 

So, for this position, I would not consider buying more. 

Now, that being said, if there were five-plus weeks until expiration, I would look to buy more.

Keep in mind, when buying more of these options, you’ll take on a bit more risk. But you'll reduce the overall cost, which means that you'll want to manage your profits sooner too. 

The buy and sell recommendations I send are guidelines. You can follow them to the letter, or with a grain of salt. Either way, know your risk tolerance — and don’t overdo it!

That’s it for me today. Be on the lookout for our next profit alert.

If you want your question answered next week, send me an email at questions@newmoneycrew.com.

Talk with you on Friday.

Sincerely, 
Joshua Belanger
New Money Club

P.S. If you're new to the New Money Club or have any questions about how to allocate positions or how to execute trades, make sure to watch this video.