Archive Category: Wednesday Windfalls Alerts

The 2023 rally in stock market indexes has been characterized by weak breadth, meaning that a minority of individual stocks account for the majority of index’s gains. Although on Friday, nearly six stocks closed higher for every one that closed lower, across all stocks listed on the New York Stock Exchange. According to my research, a single day of strong breadth (i.e. most stocks participating in the rally) can kickstart longer-lasting bullish moves — anywhere from a few days to several weeks. That could bode well for our trades this week.

It’s another tough Tuesday this week. The S&P 500 Index lost more than 1.1% yesterday. Meanwhile, oil prices fell 5.3% on Tuesday and a further 3.9% so far today. The downside move in oil hit Brazilian producer Petroleo Brasileiro SA (NSYE: PBR) hard, sending shares down nearly 4% and impairing our PBR call options by about 60% at last glance. Metal miner VALE SA (NYSE: VALE) didn’t fare much better. With shares down around 2% from our Monday entry, the VALE calls we bought are also trading about 60% lower.

One attractive aspect of any option-buying strategy is that it positions you for “long volatility,” in addition to being long on the stock price. This is particularly attractive when the level of implied volatility has fallen to a low, as it has currently. Implied volatility is the level of volatility traders expect to happen in the future. It’s also a proxy for the relative cheapness of an option contract. All other things equal, it’s cheaper to buy a call option when implied volatility is low than when its high.

The market took another dive yesterday, defying the typical seasonal strength we aim to play at the start of the week. More than five stocks traded lower for every one that rose, so it was difficult to avoid the carnage. The degree to which the stocks we played this week varied, from a very mild 0.1% loss on STX, to a heftier 6% drop in shares of NIO. As such, I expect we’ll be taking losses on all three positions this week, but over varying sizes. Ballpark, I’m estimating our likely weekly net loss to be in the -50% range.

My lead analyst, Matt Clark, and I had quite a few buy signals to sift through today. That’s wonderful — a greater number of signals means we have more to choose from, as we identify the “best of the best” trades for the week. Behind the scenes, Matt and I rely on a number of automated processes to do the initial scan of Wednesday Windfalls signals for us. This helps to eliminate the signals that show only marginally favorable metrics. Of course, there’s nothing that can replace the work we put in once we roll up our sleeves and dig into the pricing of options, contract by contract.