Volatility Incoming! (what to do)

March 19, 2024

It’s Tuesday, the Dow is up a little bit. The Nasdaq is down a little bit.

But that doesn’t really tell the whole story, because we’re entering into an era of unprecedented volatilty.

Just look at SMCI: It defies all rationale, even by the craziest standards.

It got added to the S&P 500, so people think it’s going up — but down it goes.

Then the company announces it plans on releasing a secondary issue of stock — and the stock goes down again.

So just that stock being added to the S&P is going to increase volatilty.

Or consider TSLA — the stock that should be deleted from the S&P 500.

And it definitely should be kicked out of the Magnificent 7 with how much it’s been underperforming.

The New Normal

So what we’re really entering into right now is a new wave of volatility.

You can’t just buy any tech stock. This is becoming a stock picker’s market.

You really need to focus on things that have been trending higher.

Stocks hitting new 52 week highs after a nice, long-term trend.

And you know this volatility is going to get even crazier when you look at what Bitcoin and other digital currencies are doing.

Volatility is the name of the game.

What To Do

So what you want to do is use that volatility — along with stocks that are in long-term trends… (in case you missed it, here’s how to spot trends)

And then do my favorite thing: Use them to create income for yourself.

Generating income from trending stocks can come in many different flavors, like:

Covered calls – this is when you own the stock and sell calls against it. As long as the trend is a nice, consistent trend (and not a lot of jerky spikes), you should be able to collect income while still holding onto the stock. Here’s an example of how to do a covered call.
Naked Puts – when a stock is trending higher, there’s a good chance it’s not going to go down significantly. You can capitalize on this by selling puts against the stock. This lets you collect instant income while basically offering to buy the stock if it drops in price. The beauty of this strategy is that if the stock is truly trending higher and it happens to drop a bit, you’ll be assigned and then you can start selling covered calls against it as it resumes its upward trend.
Spreads – this one scares people, but there’s no reason for that. Spreads are basically just when you sell an option and buy another option at the same time. There are many types of spreads, but one I really like to use on bullish trending stocks is the Bull Put Spread. I’ll cover that one in a future piece.
Dividends – If you spot a good strong trend on a stock that also pays a divided. Whew! You’re in for a “double-dip” treat. Because you can buy the stock and collect the dividend while selling covered calls against it. It’s like making double income!