“It was the best of times, it was the worst of times…”
Keen readers will recognize those as the famous opening words to Charles Dickens’ A Tale of Two Cities.
But they also feel like an apt description of the current market climate, don’t they?
The thing about volatility is (and maybe this will sound obvious): it goes both ways.
There are volatile days to the downside.
There are volatile days to the upside.
Sometimes, like yesterday, we see both in one day: we had a big gap down on bad economic news, and then the markets quickly climbed back up to be almost breakeven at the close:
(That strikes me as a really good sign, by the way. The economic news was pretty bad, with the economy going into reverse in the first quarter, before tariffs even really took effect. And yet, the markets found a reason to be positive. That suggests they’re looking for reasons for optimism, which hints to me that there isn’t a huge downside risk left in the market — unless a tax bill doesn’t get approved).
Back to my main point: there’s opportunity each way in a volatile market.
And so you have two options (really three, but three isn’t an option)…
One, you can make educated directional plays that keep you in the market for a short amount of time and turn quick moves into big paydays.
If you play options right, you can elevate your risk-to-reward and, like Graham said the other day, turn something that might have been a 50 or 100% winner into a 200 or 300% winner.
The other realistic option is, you can look at strategies that are either directionless or bidirectional.
Traditional income strategies are often “directionless” in that they will pay a small percentage as long as the stock doesn’t make a HUGE move to the downside.
If I’m right about what yesterday’s action means, that could make this a great time to deploy those strategies, because volatility will still be elevating premium, giving you more bang for your buck.
Bidirectional strategies, like pair trades, are designed to give you a shot to make money if the market makes a big move in EITHER direction.
Both are completely legitimate and very powerful strategies, especially in times of volatility.
And that’s why the third option, staying out of the market, really isn’t an option at all.
You should, at the very least, be paper trading, so you get some experience on how these markets work and get used to the way stocks move.
Right now there’s plenty of opportunity.
You just need to know where to look for us.
Join us on Saturday at 10AM during our First Saturday Roundtable (more details + link to come!), and we’ll help you find it!
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
P.S.: You might want to check out what Nate’s sharing today — he’s looking at a setup designed to target HUGE reward to risk just like I talked about above. It’s pretty powerful, especially right now. See more here
