While we don’t expect volatility to completely subside on its own just yet, the underlying market fundamentals still warrant a broadly bullish outlook.
As long as traders move back and forth on inflation expectations, major indices will likely stay tied to the channel. The silver lining is that the buying opportunities on the bottoms look good.
Our recommendation today is one that we have been monitoring for some time. ViacomCBS (NASDAQ:VIAC) has an awful graph on the surface, but the story behind March’s big drop isn’t what you’d expect.
Last March, a large and extremely poorly managed hedge fund (Archegos) was forced to liquidate, and its main holdings, including VIAC, Baidu (NASDAQ:BIDU) and Tencent (OTCMKTS:TCEHY), were thrown onto the market.
This is a phenomenon called “forced selling”, which creates an artificial drop beyond what the fundamentals would justify. In the past, fundamentally strong stocks that go through times like this base for a while and then regain lost ground.
In this case, we don’t think VIAC will return to its previous highs for a while, as the stock‘s trading before Archegos liquidation was far too hot.
However, we expect the company to ride its explosive growth in streaming and advertising much higher than it currently is.
The reason this is interesting for short puts is that the timing of this rally is still uncertain. So, short put options allow us to profit from the breakout whenever it occurs, as we expect the floor price to hold.
From a technical standpoint, we expect support to be kept at $ 38, so we think it makes sense to set a strike at this price point. This is an aggressive recommendation, but we believe it currently offers the best risk / reward profile.
We also believe that using a mid-June expiration is the best strategy right now, as this options chain offers plenty of option premiums and gives the trade a full month to play.
At the date of publication, John Jagerson & Wade Hansen did not hold (directly or indirectly) any position in the securities mentioned in this article.
John Jagerson and Wade Hansen are just two men who are passionate about helping investors gain confidence and earn bigger profits with options. In just 15 months, John & Wade achieved an incredible feat: 100 consecutive winners – earn money on every trade. If that sounds like a good strategy, go here to find out how they did it.