December 2021 Stock Market Volatility

Tom Gentile

Posted in Options Trading

By: Tom Gentile on December 3rd, 2021 • 5 mins read

Stock Market Volatility

Want to read one of the biggest understatements of the past few months? Here it is. The stock market volatility has been very high this past week. How about I say that was the no-brainer statement of the week?

No matter how obvious that statement is in retrospect it is true, and it has made it challenging for many when it comes to getting a bead on where the markets are going.

Shorter-Term and Swing Traders Have a bit of a Reprieve

I am an options trader through and through. I have long-term investments, sure, but I focus my time primarily on trading options and teaching others how I go about my processes.

I don’t really have to be too bogged down by trying to figure out the long-term direction of the markets because my trade length is usually 30-45 days out and shorter-time frames based on other strategies and setups.

I do pay attention to the longer-term when it comes to my trade ideas for Selling Puts to either keep the sold premium or take assignment of stocks at prices I agree to and like with my Rocket Wealth publication, but most other options strategies are usually less than 45 days to expiration or less.

Back to Stock Market Volatility

I was expecting a low volume, low volatility day the Friday after Thanksgiving beings it was a half day of trade and more investors and traders than usual were not going to be around (taking that holiday and turning it into an extended weekend).

Then BAM! News of a new Covid variant called omicron gets reported out of South Africa and the markets, specifically the Dow, low volume or not drops 1,000 points.

Then the daily news headlines start hitting us. Early reports are the symptoms were deemed mild compared to Covid, then they are reported at risk of being more severe, then Chairman Powell says the risks of this variant could disrupt things and they may need to accelerate their tapering, then the jobs reports may help smooth things over and on and on…

What is an Options Trader to do During Stock Market Volatility?

The markets experienced price price swings in the 1,000-point range in a day or two and getting traction, in fact Wednesday the Dow was up 500+ points and then closed down around 450 points – basically a near 1,000-point swing intraday! Crazy if you don’t have trade management rules and specific riles based trading rules to guide you.

Stocks showing Price Strength

There is no denying that even the best laid plans will see some losses and being a successful options trader means managing loss the best you can.

When it comes to initiating a new trade, you know I love Money Calendar and the fact it shows me historical price patterns on stock where it sees the security trading higher or lower 9 or 10 of the past 10 years.

In times where the markets are volatile and sell off pretty viciously I also like to see if there are stock showing Positive Relative Strength, meaning they are holding up in price vs. selling off in these volatile times.

Stocks At or Near their 52-wk high PLUS Money Calendar

My tools dins stocks at or near their 52-week highs. I like these because I like the investing strategy of the founder of Investor’s Business Daily William J. O’Neil where one buys strength with the idea of selling more strength.

I then take that list (list of first 5 stocks on my 52-week high list shown below)…

Stock market volatility in 52 week high low ranking

… and then I check them against the Money Calendar data to see if any of these stocks at or near their highs even in a volatile market are on the Money Calendar scan with a bullish pattern with a 90 or 100 percent success rate.

Lowe’s Companies, Inc. (NYSE: LOW) fits that bill.

Money Calendar Shows Both Bullish and Bearish Patterns

Even though Money Calendar finds patterns that trade higher and or lower I am looking for bullish patterns on stocks at their 52-week highs anticipating higher prices to come now based on TWO separate pieces of analysis… the 52-wk high and a Bullish Money Calendar Pattern.

Take a look at the Money Calendar data below.

Bullish and bearish volatility December 3rd, 2021

LOW shows it has traded higher over this date range 9 of the past 10 years (90% accuracy)

The Avg. Profit / Price Move was $4.20 with an End Date of Jan. 11, 2022

What Options Trade to Consider

First:  Consider a Buy to Open LOW January 14, 2022, $250 Call for a limit of $9.95 per contract. 

Example option call: Lowe's (LOW)

Actually, I would rather you not consider this for two reasons.

  1. It exceeds what I teach about a max risk per trade amount. 1 contract would cost $995; and
  2. We are seeing options Implied Volatility being elevated or high compared to its yearly norm and I am not a fan of buying high IV.

With that in mind here a different consideration where one could sell high IV with a Put Credit Spread.

Second: Consider selling to open a Put Credit Spread where one would Buy to Open a LOW Dec. 17, 2021, $235 Put and Sell to Open on the same order ticket a LOW Dec 17, 2021, $237.50 Put  creating a Put Credit Spread at a credit of $39.50 per contract. 

Put Credit Spread during stock market volatility

With a Put Credit Spread we want a shorter time to expiration because we would prefer the options expiring worthless, so we keep the full credit. And that happens with LOW above the sold strike of the spread which is the $237.50 strike.

There you have a couple of option ideas for an up-move on XLK.