Tag: COVID-19

Should The Omicron Variant Be A Concern For Investors?

Posted on by Matt Thalman

While Americans were celebrating the Thanksgiving Holiday, the rest of the world dealt with the newest Covid-19 variant. The Omicron variant of coronavirus, first identified in South Africa, has been reportedly spreading in parts of Europe for days before it was identified in southern Africa.

On December 1st, the first confirmed US case of Omicron coronavirus variant was detected in California. In a White House news briefing, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the case was in an individual who traveled from South Africa on November 22 and tested positive for Covid-19 on November 29.

As of the end of November, the variant was already found in 20 countries, and governments around the world were already implementing lockdowns and travel restrictions.

These decisions where being driven by the fact that the Omicron variant was substantially different. With about 50 mutations from the original coronavirus, which started the pandemic, and about 30 mutations compared to even the highly contagious delta variant that has swept around the world. However, scientists don't know if the variant is actually more contagious or more deadly than any previous variants.

Many have been calling this an overaction, while others say the lockdowns and travel restrictions are adequate steps to protect others. Regardless these are difficult decisions for the politicians, and there will inevitably be those talking heads on the T.V. bashing the leaders regardless of their decisions. Part of this circus helps build fear and anxiety in most people, leading to fear and anxiety within the stock market.

The worst single day for the U.S. stock market in 2021 was Friday, November 25, the day following Thanksgiving, a shortened trading day, and of course, the day after the world found out about the new Omicron variant. The following few trading days were similarly volatile, with the market bouncing higher and then lower, despite any new real tangible information about the true nature and danger of the Omicron variant being known.

So, should this new variant be a real concern to investors? Continue reading "Should The Omicron Variant Be A Concern For Investors?" →

Q4 Approaching: Markets In Rarified Air

Posted on by Noah Kiedrowski

The bulls have been trampling the bears in a near orderly uptrend for the past ~10 straight months now. The bear thesis couldn’t have been more wrong despite the markets facing a trifecta of rising interest rates, an unknown delta variant backdrop, and the Federal Reserve tapering later this year. The major indices are in unprecedented territory breaking through all-time high after all-time in what seems to be a daily occurrence. With Q4 2021 coming into the picture, the S&P 500 is up over 20% and places the market in rarified air.

The S&P 500 index recorded its 53rd record high on September 2nd, which makes 2021 the 5th-ranked year over the past century in terms of record highs, per Bank of America. This significant milestone has been achieved with four months remaining in 2021. The other major indices, such as the Nasdaq and Dow Jones, are showing similar patterns as measured via QQQ and DIA, respectively.

Stocks are overbought and at extreme valuations, as measured by any historical metric (P/E ratio, Shiller P/E ratio, and Buffet Indicator). Valuations are stretched across the board, with the major averages at all-time highs and far away above pre-pandemic highs.

Markets
Figure 1 – Adopted from Buffet Indicator analysis via Current Market Valuation

When the Fed Taper and Inflation Hit

As the Consumer Price Index (CPI) continues to push higher in conjunction with better-than-expected employment numbers, the Federal Reserve may be compelled to finally not only entertain the idea of raising rates but implement a rate increase. Although interest rate risk disproportionally impacts fixed-income investments such as bonds and annuities, stocks will undoubtedly be impacted as well. This is especially true for highly leveraged companies such as tech and super-charged growth companies. Even the prospect of higher rates hit the Nasdaq in March for a sharp decline, albeit that decline was quickly erased. This is a case in point of how quickly the markets can turn negative with the hint of rising rates which may be exacerbated in an already very frothy market. Continue reading "Q4 Approaching: Markets In Rarified Air" →

Do We Really Need More Stimulus?

Posted on by George Yacik

As we speak, Republicans and Democrats are still wrestling over another coronavirus stimulus package. Everyone wants one, we’re told, and the economy needs one.

Don’t start spending that stimulus check just yet.

Despite what they claim, Democrats don’t really want a deal, no matter how big, at least not until after the election. Do you really believe that Nancy Pelosi and Chuck Schumer want to allow President Trump to play Santa Claus and send out $1,200 checks to American voters right before the election? Needless to say, the president would just love to have his name on those checks.

So don’t count on another stimulus package until after the election, if then. It’s a valid question of whether the country really needs another one. But never fear, the Federal Reserve will step in where Congress fears to tread.

At its September 15-16 monetary policy meeting – the last one before Election Day – the Fed updated and revised its prognosis upward for the U.S. economy, finally catching up with many other analysts and some of its own regional banks who are forecasting a much brighter picture than Fed Chair Jerome Powell and many other Fed officials have been painting over the past couple of months.

The Fed now expects U.S. economic growth to be negative 3.7% for this year, a big upgrade from its negative 6.5% projection in June. It also expects positive growth of 4.0% next year (down from 5.0%), 3.0% in 2022 and 2.5% in 2023. Regarding unemployment, it expects the jobless rate to fall to 7.6% this year from its June projection of 9.3%, declining further to 5.5% next year, 4.6% in 2022, and 4.0% – i.e., full employment – in 2023. Continue reading "Do We Really Need More Stimulus?" →

Seeing Beyond The Black Swan Event - Part 2

Posted on by Noah Kiedrowski

And just like that, the S&P 500, Nasdaq, and Dow Jones hit their all-time highs, and the COVID-19 market sell-off had been erased. Just before the COVID-19 pandemic struck the markets, Ray Dalio was recklessly dismissive of cash positions, stating "cash is trash." Even Goldman Sachs proclaimed that the economy was recession-proof via "Great Moderation," characterized by low volatility, sustainable growth, and muted inflation. Not only were these assessments incorrect, but they were ill-advised in what was an already frothy market with stretched valuations prior to COVID-19. I'm sure Ray Dalio quickly realized that his "cash is trash" mentality, and public statements were imprudent. The COVID-19 pandemic has been a truly back swan event that no one saw coming. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The S&P 500, Nasdaq, and Dow Jones shed over a third of their market capitalization at the lows of March 2020. Some individual stocks lost over 70% of their market capitalization. Other stocks had been hit due to the market-wide meltdown, and many opportunities were presented as a result. Investors were presented with a unique opportunity to start buying stocks and take long positions in high-quality companies. Throughout this market sell-off, I started to take long positions in individual stocks, particularly in the technology sector and broad market ETFs that mirror the S&P 500, Nasdaq, and Dow Jones. It was important to put this black swan into perspective and see through this crisis on a long term basis while viewing COVID-19 as an opportunity that only comes along on the scale of decades.

Most Extreme and Rare Sell-Off Ever

The abrupt and drastic economic shutdown and velocity of the U.S. market's ~30% drop within a month bring parallels to the 1930s. This sell-off was extreme and rare in its breadth, nearly evaporating entire market capitalizations of specific companies. The pace at which stocks dropped from all-time highs was the fastest in history. The major averages posted their worst week since the financial crisis (Figures 1 and 2). The Dow had its worst month since 1931, and the S&P had its worst month since 1940. Continue reading "Seeing Beyond The Black Swan Event - Part 2" →

Post COVID-19 -100% Options Win Rate

Posted on by INO.com Team

A total of 76 options trades were placed in May, June, and July as the market rebounded after the COVID-19 market lows. During this timeframe, all 76 trades were winning trades to lock-in a 100% option win rate with an average income per trade of $190 and an average return on investment (ROI) per trade of 7.6%. After the tumultuous market lows of March and into early April, leveraging a minimal amount of capital, mitigating risk and maximizing returns was paramount. The objective of an options-based portfolio can offer the optimal balance between risk and reward while providing a margin of downside protection with high probability win rates.

As the market continues to rebound, optimal risk management is essential when engaging in options trading as a means to drive portfolio performance. When engaging in options trading, risk mitigation needs to be built into each trade via risk-defining trades, staggering options expiration dates, trading across a wide array of uncorrelated tickers, maximizing the number of trades, appropriate position allocation and selling options to collect the premium income.

Getting creative and customizing your option trade structure is another element that can be layered into the overall strategy for long-term success in options trading. Maintaining disciple via continuing to risk-define trades, leveraging small amounts of capital while maximizing return on investment, is essential despite the impressive streak of 76 consecutive winning trades.

3 Months Post COVID-19 Results

After placing 76 trades throughout May, June, and July, a 100% win rate, 99% premium capture, and 7.6% ROI per trade was achieved. This was accomplished via leveraging a minimal amount of capital and maximizing return on investment with risk-defined trades. Deploying a combination of put spreads and custom put spreads was used to optimize the risk-reward profile for these 76 trades. Whether you have a small account or a large account, a defined risk (i.e., custom put spreads) strategy enables you to leverage a minimal amount of capital, which opens the door to trading virtually any stock on the market regardless of the share price. Risk-defined options can easily yield double-digit realized gains over the course of a typical one month contract (Figures 1, 2, and 3).

Options
Figure 1 – Average income per trade of $190, the average return per trade of 7.6% and 99% premium capture over 76 trades in May and June
Continue reading "Post COVID-19 -100% Options Win Rate" →