| Editor’s Note: As you know, it’s my mission to bring you the best options trading advice in the biz. And right now, that’s coming from my colleague, Chris Johnson. This year alone, he’s closed out a total of 40 winning option trades. And now, he’s here to tell you how he did it. |
I’m Chris Johnson.
Over the course of my 30-year career in the markets, I’ve developed a set of 10 rules that I call The 10 Commandments of Trading.
Now, it’s no lie that COVID-19 has completely rocked the markets, bringing stocks to places they’ve never been before. Yet, through it all, these 10 commandments have held true.
And one of them in particular has risen to the top.
The commandment I’m going to tell you about today is the reason my readers have had the chance to score profits totaling 753.87% in a week’s time.
It’s how they could have maintained a 15-win streak while the market cratered 16%.
nd I’m going to use it to show you how to put an extra $10,000 in your pocket in the next 30 days. Click here to take advantage.
Without further ado, let me tell you everything you need to know about my eighth commandment of trading: volatility is a trader’s best friend…
Identify Volatility Surges with This “Two-Indicator” Method
Volatility is the friend that everyone loves to hate. Just read the definitions of volatility from Dictionary.com and Investopedia….
- Dictionary.com: Liability to change rapidly and unpredictably, especially for the worse.
- Investopedia: Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.
We’re taught that volatility is bad. I mean, sure, in some cases it is. But without volatility, we would all be relegated to returns that barely rival a savings account.
Let’s face it – without volatility, you’ll never have the opportunity to beat the market. Think about the investing-specific definition regarding the distribution of returns. The wider the distribution, the higher the volatility. Well, higher distributions mean that things are moving. And if they’re moving the right direction, then we’re getting paid.
Volatility can be broken into two categories: “good” and “bad.”
I know that seems simple, but as successful traders, the key is to get on the right side of volatility. Being on the right side of the volatility move will take you far – or, as I like to put it, F.A.R. A Fast, Aggressive, and Right directional movement is what we’re always searching for. It’s how you get paid as an investor and beat the market.
Now, it’s easy to find volatility when it’s already rocking the market. But in order to make a successful trade, you need to find the volatility before it actually happens.
To do this, you can use one of my favorite indicators – Bollinger Band Width. This indicator measures volatility by looking at the distribution of price changes over a period of time. Simply put, when a stock becomes notably quiet, or less volatile, the Bollinger Band Width shrinks. In most cases, this represents the “calm before the storm.”
The width between the top and bottom bands gives you an idea of when the volatility move is getting ready to occur. The tighter the bands get, the higher the probability that a volatility breakout is approaching.
But this leaves one question remaining – will it be a volatility rally or a selloff? This is where the use of a few other simple technical tools come in…
Often, the best course is the K.I.S.S. approach – Keep It Simple, Stupid. But traders can also tilt the scales of success in their favor by combining this indicator with two technical criteria for finding bullish F.A.R. moves:
- Monitor whether a stock is above its 50-day moving average
- Make sure the same trendline is moving higher
With both of these indicators in place, the odds are higher that a bullish volatility rally is in the works.
Here’s what it looks like…
Let’s take a look at the chart for the SPDR Gold Trust (GLD). Yup, that’s right… boring, old gold.
- In early December, the Bollinger Band Width dipped to extremely low readings – the calm before the storm.
- A look at the ETF’s 50-day showed that the trend was growing bullish, and the ETF had just made a bullish break above this powerful trendline. This was an indication that the trend in gold was turning bullish.
The results of this simple combination? A volatility rally that took
GLD shares almost 8% higher in less than two weeks. That’s more than enough to turn a simple option trade into double-digit profits.
Another example of this powerful combination can be seen in the daily trading action for Zoom Video Communications Inc. (NASDAQ: ZM).
Now, we all know that ZM has been on a tear since companies across the globe began working from home. But this stock was already on my radar as a relative strength leader back in February, when the market was just starting to get wobbly.
According to the low Bollinger Band Width readings, this up-and-coming stock had “gone to sleep” for the calm before the storm. At the same time, a check of the 50-day moving average showed that the stock had just made a bullish advance that was building momentum.
From there, it was uphill, to say the least.
Shares of
ZM rallied almost 80% over the next month, a move that was striking on its own. But by leveraging that move with an option, you would have raked in returns of over 170%.
So, there you have it – a simple, “two-indicator” method for identifying volatility surges that can turn a beginner trader into a seasoned pro.
Now, this approach doesn’t only work when stocks are rising. It also yields some incredible results during a bear market, as it identifies stocks that are ready to fall off the edge of the table, ripe for protective put positions that can yield hefty profits.
Just ask my readers. The past couple of months, the market has taken an unprecedented nose dive – and they’ve been making money.
“200% gain. Chris is on fire. Portfolio is up 300%.” – Chang Park
“I made $6520 – a 62% profit. I am retired, and this helps me live better.” – Collin Vickers
“I have had 10 winners in a row. My advice? Stick with Chris.” – Janelle Nathan
And I believe there’s more where that came from.
See, we’re just getting started. I’ve never seen a market with this kind of profit potential. And my goal is simple: to show you how to put an extra $10,000 in your pocket in the next 30 days.
I’d love for you to join me. To learn all the details, click here.
I hope to see you soon,
CJ
Night Trader
