In the Money

Get a fresh take on market opportunities. Hear from options strategist and CNBC contributor Dan Nathan for insights, commentary, and ideas to help you trade smarter.

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October 16, 2020: 3 sources of market volatility–coming in hot

As we discussed on October 14 on In the Money, there have been 3 main sources of market volatility over the last few weeks: expectations for further fiscal stimulus, the progress of coronavirus vaccine trials along with resurgence of new cases, and Q3 corporate earnings. The reports from earnings season should serve as a report card on the pace of the reopening of the economy, which is largely dependent on the first two. This volatility presents trading opportunities.

Let’s look back on a few recent trade ideas from In the Money . You can find more information on these trade ideas by viewing the video above or listening on Apple Podcast.


October 7: Bearish trade idea on iShares Russell 2000 ETF (IWM)

Trade idea: Last Tuesday, when IWM, the ETF that tracks the Russell 2000 small-cap index, was trading very near where it is as I write ($159.50), I detailed a trade idea that would serve as a bearish proxy for the market if a stimulus deal was not agreed upon this week:

  • With IWM trading around $159.50, buy 1 October 160 put for $3

Update: On Friday, October 16, with hours to expiration, this is a market call, and if the ETF is not below $160 it will expire worthless. If it’s in the money, consider trading out of below $160.


September 30: Bullish trade idea on Disney (DIS)

Trade idea: After the stock's sell-off earlier in the month on news of park closures and layoffs, the goal of the trade is that the stock will grind higher into November expiration and the short near-dated call will help finance the cost of the longer-dated call:

  • With DIS at $125, buy the November/January 135 call calendar spread for $2

The legs in the spread at time of trade were:

  • Sell to open 1 November 135 call at $3
  • Buy to open 1 January 135 call for $5

Update: The stock has since rallied to $130 and settled back near $127.30. This volatility has caused the spread to gain in value, worth about $2.70 compared to the initial $2 premium. We will check back prior to the November expiration.


September 16: Bullish trade idea on Abbott Labs (ABT)

Trade idea: Considering the prospects for their rapid COVID-19 testing device and a re-test of their prior high from August around $114 on news of a government contract:

  • With ABT at $107, buy the November 110-125 call spread for $3

The legs in the spread at time of trade were:

  • Buy to open 1 November 110 call for $4
  • Sell to open 1 November 125 call for $1

Update: With the stock up about 1% since then, this spread is also up a little. This will be another trade that we’ll check back on prior to November expiration.

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