Contents
In my past post I wrote about Ben Bernanke being the most powerful man in the world.
I mentioned how important it was to listen when he speaks simply because he controls the power of money.
Because Bernanke is in charge with keeping the economy stable his obligations also is to report future and current conditions of the U.S. economy.
His speeches often move markets as seen on June 19,2013.
On June 19 the Dow ended at a loss of 206 points -1.3%. The S&P 500 was down 22.8 -1.3% and the NASDAQ down 38.9 -1.1%.
On June 20th the Dow loss 354 points. The S&P 500 was down 41 and the NASDAQ was down 79 points.
As markets fell I watched financial articles all over publicizing fear.
We all know the power of the media so of course markets fell faster.
Below is a headline article that was posted in the finance section of yahoo.
First we will examine the headline. Second we will examine my transaction on how I handle volatile markets.
You may notice in the headline the word plunge. When you see this what emotion come to mind? If you said fear than you’re correct because this is the emotions of many people.
In the stock market the more fear there is, the faster stocks will fall. And the faster stocks fall the more speculation there is. When this happens, it’s a great chance to make money which I’ll reveal later.
Just keep in mind that bad news can be good news if you know what you’re doing.
Another word to be aware of in the headline is the word volatility. In my past post I explained stock options gain and lose value (money) on implied volatility.
This is crucial if you’re an option trader since volatility is one of the major factors which affects an option.
To further understand how you can profit from this, I recommend purchasing the
In this course you will learn how to make money whether a stock moves up, down, or sideways.
You will also have access to video lessons, articles, plus free downloads to better your education.
So if your serious on learning how options can increase your income become a member today.
Knowledge is the New Money
The problem with most people is they seek money more than they seek knowledge. They spend so much time chasing money that they fail to realize knowledge is the new money.
In this section I will reveal to you ways I made money when the stock market was on a decline. This is not a recommendation, I’m simply trying to bring home why financial knowledge is important.
In the beginning of this article I began with Ben Bernanke and how his speeches move markets.
I’ve also wrote in my previous article The most powerful man in the world how Bernanke planned to reduce his bond buying program and raising rates.
Basic financial education would have helped you understand that reducing this program would have sold off the market. Why? Because the purchase of treasury and mortgage bonds was what kept long-term interest rates low, a pullback would only mean higher rates.
If rates were to go higher, mortgages rates, consumer debt and business loans would follow as well.
If you knew this piece of information you already had knowledge you could have leverage. Knowing this should have led you to watch for volatility in S&P 500.
By also tracking SPY (S&P 500 exchange trading fund) you would have seen weakness in the S&P.
Along this you should have watched what is known as the VIX (fear index) because it measures implied volatility in the S&P 500 index options.
By tracking the movements of the VIX you would have also seen trouble in the S&P.
History shows when implied volatility is up, the VIX will often rise.
The reason this happens is because the VIX index measures the heartbeat of the S&P 500. So if there’s extreme buying of puts and call options the VIX will rise.
Base on this study I knew when markets fall corporations and hedge funds would scramble to protect their portfolios.
To protect their portfolios I already knew they would be loading on puts. Doing this would spike the VIX and I was waiting in position.
Knowledge is Power
Because implied volatility causes an options price to move upward I bought
calls on the VIX, the VXX, and UVXY. The reason why is because they’re proxies of the VIX so at some point they mimic its behavior.
Below are screen shots of market conditions of June 20. Notice they are all moving upward and SPY is the only one moving downward.
The VIX index
Long VIX ETF
Long VIX ETN
The ETF for the S&P
Knowledge converts to money
Now you have an idea how markets behave I will reveal my positions and how I profit. Again this takes timing and experience; if you’re going to try this, first paper trade.
You can paper trade these positions by opening a think or swim account. This way you see your results and the best thing is it’s risk free.
Okay let’s get to it.
In the diagram below you will notice there are different color lines and arrows that are drawn.
The red arrows points to what I’m trading. The blue arrows points to the P/L ( profit and loss for the day). The purple arrows under Market shows what the option is currently worth. While Average Price shows the cost(value) of the option from the first time I bought it.
For instance if you look at the SPY you will see that the average price for that option was $1.80. Since one option covers a hundred shares you I bought 10 which equates to $1800.To calclutae this you multiply the cost of the option by the number of contracts then by 100. So it would look like this $1.80x10x100= $1800 not including brokers fee.
To calculate my P/L (Profit to loss) just take the market price which is $4.14 and subtract it by the average price which is $1.80 then multiply it by the number of options which is 10. So the calculating would look like this $4.14 -$1.80 = $2.34. So $2.34x100x10= $2340. This is simply the difference of what the option cost and what its worth now. This is why I’m profiting $2340.
Another thing to give notice is I bought put options on SPY and bought calls options on the VIX, UVXY, VXX.
By doing this I was trading the trend. Which was SPY heading down(put options) and VIX, UVXY, and VXX heading up( call Options). This is an oversimplified example on why knowledge is the new money. As you can see I made thousands leveraging knowledge and the option boost course.
What knowledge are you seeking?
In college I once took a business course which introduces Bernanke in our text books. It was a very informative class the problem was it didn’t reveal the power of his speech.
Although I learned a few things on business the knowledge I obtained didn’t make me much money.
The text-book cost me $259 but I walked out with little knowledge about money.
This is not to say college is a waste of time, but to point out there’s greater knowledge else where.
If you’re really serious about making money financial education is your higher education. As stated in the bible “My people perish from lack of knowledge.”
Don’t let this be you.
Closing Transaction
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