There are all sorts of records being set on Wall Street this week. It is a sign of a panic-stricken market filled with investor anxiety and an incredible flight to safety.
Some of the records, like the amount of companies hitting all-time lows, are quite scary and offer little in the way of optimism. But other records are well worth watching. They are pointing at some pretty interesting and lucrative investing opportunities.
First, take a look at the action in the options market yesterday. The Chicago Board Options Exchange (CBOE) reported a new high in trading volume of S&P 500 (SPX) options. Nearly 2.2 million contracts traded in yesterday’s frenetic market. On the average day, just 670,000 options change hands.
More importantly, yesterday will go down as the third busiest day in the options-trading market’s history. Over 9.5 million contracts were traded.
When so many options get tossed around, it is a surefire sign of one thing, volatility. And as you guessed, the CBOE Volatility Index (VIX) saw record levels as well. The index stretched out to reach a reading of 58.24.
When markets are trading in a normal fashion, the index is somewhere in the range of 15, with a reading of 20 a rare occurrence. This week’s scores above 50 are a sure sign of trouble in the markets.
All of these newly minted records tell a pretty important story. When markets are raging back and forth, options investors have an incredible shot at profits. As long as they can keep their eyes and ears focused on the markets (I have been watching the action from 6:00 a.m. until at least 9:00 p.m. during the past few crazy weeks) and are prepared to move quickly, there is enormous potential.
Record profit potential
Just look at yesterday’s action. Before the opening bell could stop ringing, the Dow was reaching into triple-digit territory. By mid-morning, it was closing in on 200-point gains. But at yesterday’s close, it was a much different story. The Dow was down by over 508 points.
In all, the world’s most watched index swung by nearly 700 points. That is the kind of swing that can sometimes take months to occur. Yesterday, it did it in a matter of hours.
You need to take advantage of this huge volatility. As you can tell by the record-setting volume over the past few days, many investors believe options are their best bet. They are right.
There are all sorts of ways to play the options market. You can use it as a hedge for your equity positions. You can use it to magnify the long positions in your portfolio. Or you can go ultra-speculative and use it to lock in triple-digit gains in a matter of hours.
Over the last few weeks, I have written about some spectacular options opportunities. Many of them produced gains of over 50% in just a day or two. It is proof that there is money to be made.
If you are not familiar with the options markets, go to the library and grab a stack of books. There has never been a better time to take advantage of these unique investment vehicles.
Disclosure: none
