2020 has been marked by record high volatility in the stock market. Undoubtedly, the social and economic impact of the coronavirus pandemic is driving the elevated volatility, and it served as the catalyst behind the March crash in stocks. Whenever you have a major dislocation in the stock market, the aftereffects tend be felt for months (or even years).
However, let’s focus on a silver lining to what has otherwise been a very difficult year. Highly volatile markets can provide good opportunities to make money for options traders.
Trading options in volatile markets can be lucrative because the market moves so much. Options trades can make money when the market moves up or down. Plus, when you are buying options, typically the more the market moves, the more money that can be made.
The key is giving your options trades a chance for success. That means buying options on both sides of the market (bullish or bearish). It also means having the patience to wait for those options to make money, because there’s a decent chance (if you buy enough time) that both bullish and bearish bets will work out.
Finally, it’s always smart to use proper risk management when trading. Don’t put all your eggs in one basket. Don’t spend too much on any particular trade. Be willing to roll out—extend the time on—some trades. As long as you are savvy about it, this type of market can produce plenty of big winners.
Jay Soloff is the Options portfolio manager at Investors Alley. He is the editor for Options, an investment advisory bringing you professional options trading strategies, with all the bells and whistles of Wall Street, but simplified so all you have to do is enter the trades with your broker. Click here for your copy of The Beginner’s Options Guide before it’s no longer free.
