Hello, Power Profit Traders!
After stocks sold off early last week, we saw the major indexes stage a recovery of sorts into the weekend.
Not so this week — at least, not for the Nasdaq (yet, anyway).
Tech stocks sold off again yesterday, after getting hammered on Tuesday, as rising Treasury yields spooked traders…
And based on the last hour of Wednesday’s session, I have to wonder if there isn’t more selling coming our way.
Only time will tell when the bleeding will ultimately stop, and if we’ll continue the historically bullish seasonality we’ve seen in recent Octobers.
The waters are choppy out there, so it’s important to stay dialed into the market and catch all the LIVE updates you can — like my 10:30 a.m. ET hour TODAY, right here. (And be on the lookout for another YouTube message soon!)
Things can move fast, and with earnings season right around the corner, there’s no telling when the volatility will cool down, as my good friend Mike Wade spelled out for you LIVE yesterday.
Until then, be careful out there,
have a plan, and continue to soak in all the education you can. Meanwhile, I’ll continue to identify patterns and trade what I can, based on the tools and research at our disposal — like the
free Morning Report in the TG Suite app.
In fact, because of the recent selling pressure in the markets, today’s Power Profit Trades Watchlist is once again courtesy of the Morning Report’s Unusually High Put Option Volume list.
So, let’s see which sector option traders expect to slide, based on yesterday’s wild option trading.
3 Bank Stocks in the Bearish Crosshairs
The stocks on the Unusually High Put Volume list from the Morning Report got there because their underlying put options saw above-average put activity, indicating a bearish bias.
See, by buying a put to open — and we can assume a lot of the puts on our Watchlist were, in fact, newly purchased — the traders expect the shares to move below the strike before the option expires.
The deeper the put moves into the money in that time frame, the more the buyer stands to gain.
That said, one sector that makes up nearly a third of today’s Watchlist: Banks and finance.
Fidelity National Information Services (FIS) tops our list, as its
$120-strike put option expiring Nov. 19 saw an abnormally high 6,047 change hands yesterday. FIS closed yesterday at $123.34, and hasn’t been south of $120 all year.
In addition, Citigroup’s (C) $65-strike put expiring Dec. 17 also made the list. Citi shares ended Wednesday at $71.53, meaning these puts are more than 6 points out of the money (OTM).
And finally, even longer-term traders placed even deeper OTM bets on JPMorgan Chase (JPM) stock, with the $135-strike put expiring June 17, 2022, seeing notable action. JPM settled at $165.95 last night — a move below $135 would nearly wipe out its year-to-date gains.
It’s difficult to say why bearish options traders were particularly fond of banks yesterday, but one reason could be the kickoff of earnings season, with many companies in the sector expected to report in mid-October.
Or perhaps recent comments from JPMorgan Chase CEO Jamie Dimon spooked some traders. Earlier this week, Dimon warned that the firm was preparing for a worst-case scenario when it came to the U.S. hitting its debt ceiling, though he ultimately expects politicians to avoid a “potentially catastrophic” default.
Whatever the motive, the sector was certainly in the crosshairs, so traders are either picking up puts to bet on a steep slide soon, or buying OTM puts to protect the shares they already own.
While it sounds counterintuitive to buy puts on a stock you’re bullish on, doing so allows you to have a leg of “options insurance,” locking in a worst-case-scenario sale price (the strike), if things turn against you.
That’s all for now, but be sure to jump in this room and catch my FULL HOUR of LIVE market analysis at 10:30 a.m. ET today!
Talk to you soon,
Tom Gentile
America’s #1 Pattern Trader, Power Profit Trades
