Eagle Daily Investor

Why You Should Follow the Money — to Options

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No doubt you’ve noticed that hundreds and hundreds of companies are reporting their quarterly earnings this week, with hundreds more to come next week.

These announcements tend to put Wall Street in a rapid-fire mode that results in a “shoot first, ask questions later” scenario.

Of course, it’s only later that you can put all of the pieces together and reconcile them with your larger investing mosaic.

As you sit back and sift through the data, you’ll also notice that even though the stock market is setting new highs, the S&P 500 is up only 7.5% year to date. Even if the stock market replicated that return in the back half of 2014, it would mean a total return of 14-15%.

On the one hand, you would probably say, “I’d take that!”

But if we were to follow the money, and by that I mean the dollar amount that is being committed to equities, we’d find it has been falling. We have to look no further than the monthly trading data published by the NYSE Euronext (NYX) and the NASDAQ OMX Group (NDAQ) to confirm this; but it’s the drop in equity revenue that is really worth noting.

If we look at the large investment banks like Morgan Stanley (MS), Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC), each reported both sequential and year-over-year drops in equity trading volumes and related revenue during the June quarter.

So where is the money going?

Perhaps the better question to ask is this one — where should the money go to produce a big double-digit, if not triple-digit, percentage return?

The answer is options.

Data from the Options Clearing Corporation shows that since 1991, there have been only two years that did not see a year-over-year increase in equity option volume. If we annualize the volume of equity option trading through the first six months of 2014, we are tracking to see another year-over-year increase.


Source: SeeItMarket.com

With the ability to book double-digit, or even triple-digit, percentage trades in a few weeks and, in some cases, just a few days, it’s no wonder that more individual investors are trading options.

It may sound outlandish, but subscribers to my PowerOptions Trader service and I know how true this is. In the span of two months, we returned 113% on a call option position in Coca-Cola (KO), and in less than three weeks, we booked a 96% return in nonresidential construction company Jacobs Engineering (JEC).

Another example includes the 172% return in a ConAgra (CAG) call option trade that closed in just over two weeks. But as I said, sometimes it only takes a few days for a call option trade to pay off — we saw that with our Utilities Select Sector SPDR (XLU) trade that returned 116% in TWO DAYS.

For the novice trader, all of the associated options terminology may sound rather daunting — expiration date, strike price and so on — but that’s why my PowerOptions Trader service clearly explains how to make each trade. In fact, all you need is to be approved to trade options in your stock account. I tell you how to do the rest.

Still not feeling like you know enough? My recommendation is for you to visit my option tutorial video that reviews the basics of option trading, discusses trading strategies and gives several real-world examples of option trades that I shared with my subscribers. Watch that video now.

If you’re ready to take the next step — and get the opportunity for multiple double- and triple-digit percentage gains in my PowerOptions Trader service — view the research on my newest plays now.

In case you missed it, I encourage you to read my e-letter column from last week about how investing resembles moviemaking more than photo taking. I also invite you to comment in the space provided below.

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About Chris Versace

Chris Versace is the Editor of PowerTrend Brief -- a FREE, weekly electronic newsletter. He also writes PowerTrend Profits, a paid monthly newsletter that helps individual investors profit through buying shares of companies poised to win big in the 8 PowerTrends, as well as writes the PowerTrader trading service that seeks to deliver short-term gains using stocks, exchange-traded funds and options. Chris has been ranked an All Star Analyst by Zack's Investment Research. He also appears regularly on radio and has been quoted in The Wall Street Journal, Investor's Business Daily and many other publications.

View all posts by Chris Versace →

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