An options price is determined by a variety of factors, but volatility, the amount an underlying stock’s price is expected to move, is one of the most important factors to consider when trading options. If a stock is highly volatile, there is a greater chance that it will reach the option‘s strike price. With low-priced, high-volatility stocks, we can often trade inexpensive at-the-money options to take advantage of low-risk trading opportunities based on volatility rather… Read More

An options price is determined by a variety of factors, but volatility, the amount an underlying stock’s price is expected to move, is one of the most important factors to consider when trading options. If a stock is highly volatile, there is a greater chance that it will reach the option‘s strike price. With low-priced, high-volatility stocks, we can often trade inexpensive at-the-money options to take advantage of low-risk trading opportunities based on volatility rather than price. Bank of America (NYSE: BAC) is a low-priced stock (under $10) that has traded with a high amount of volatility during the past year. In the past 15 weeks, BAC is up more than 30%. That reversed a 32% decline in the previous 11 weeks. In the 15 weeks prior to that, BAC was up 105% after falling 30% in 13 weeks. BAC’s history of volatility is well established, and given this, I would expect options to price in a move of at least 25%-30% over the next four months. But the January 2013 options… Read More

When traders think about Black Swans, they tend to recall the big market declines like the one we lived through in 2008 when a housing market meltdown led to a steep drop in stock prices. Black Swans can also be seen in… Read More

When a company misses earnings or lowers their revenue forecasts, the stock price tends to fall. Some traders invariably “buy the dip,” meaning that they buy after a decline thinking the pullback in price is simply a blip in the longer-term uptrend. This rarely works, and usually the first bit of bad news is followed by more bad news and even lower prices. Netflix (Nasdaq: NFLX) is an example of how bad news can impact a stock’s price.   NFLX sits over 80% below its all-time high more… Read More

When a company misses earnings or lowers their revenue forecasts, the stock price tends to fall. Some traders invariably “buy the dip,” meaning that they buy after a decline thinking the pullback in price is simply a blip in the longer-term uptrend. This rarely works, and usually the first bit of bad news is followed by more bad news and even lower prices. Netflix (Nasdaq: NFLX) is an example of how bad news can impact a stock’s price.   NFLX sits over 80% below its all-time high more than a year after the bad news started to flow. While hopeful buyers averaged down, the stock fell for months before it became oversold. Oversold is shown in the chart with the stochastics indicator. That indicator works well to show how markets reach extreme levels and tend to stay there for extended periods of time. This insight sets up a trade now in another former high-flyer, O’Reilly Automotive (Nasdaq: ORLY). ORLY was a market leader after the March 2009 bottom in stocks, soaring… Read More

Traders sometimes overreact to bad news. One of the most common occurrences of this is when a company reports lower-than-expected earnings or guidance, which causes the stock to sell off sharply. If the earnings miss is isolated to that quarter, the sell-off… Read More

Amazon.com (Nasdaq: AMZN) is changing the world, again. The first time this happened, Amazon was changing the retail landscape and demonstrating that success didn’t require brick-and-mortar stores. In the late 1990s, Amazon gained more than 4,500% in less than three years, before peaking at $356 (unadjusted for splits) in December… Read More

With the NFL football season kicking off this week, I took a look at publically traded brewing companies and found that many of them have stocks that seem to be overvalued. Many, but not all…#-ad_banner-# One brewer I came across not… Read More

There has been a break in the news cycle as Europe has been quiet for a few weeks, but that is about to change. The next summit of European leaders is scheduled for mid-October, but politicians are already posturing so there could be market-moving news before then.#-ad_banner-#… Read More

Indicators are used by traders to forecast market moves and many have found success with these tools. I prefer simple chart reading, and one of the simplest ideas on charts is support and resistance. Support appears to keep prices from falling… Read More

Europe is in the news again, although it seems like the continent’s financial turmoil is always in the news. European Central Bank (ECB) President Mario Draghi was quoted in The Wall Street Journal as saying, “It… Read More

Economists don’t know if inflation will increase or not, and I certainly don’t pretend to know. But like many traders, I am worried about what would happen if inflation picks up. Some traders turn to gold as an inflation… Read More