No New Trade Idea Today From Trending Stock Report

After Friday’s drop in the U.S., heavy selling in Asian markets got the ball rolling this morning. Circuit breakers were triggered to stop the collapse. As of this writing the S&P 500 futures are down 4% in pre-open trading. The Nasdaq futures are down 13% and the Russell 2000 futures are down 5%. We nailed the Microsoft (MSFT) credit spread on Friday, but even the mighty MSFT is down 4.5%. Nvidia (NVDA), the darling AI stock, is down 10% in pre-open trading. Super Micro Computers (SMCI), which makes super computers, is down 50% from its peak in March.

In Friday’s action there were sectors that moved up. Those were staples and utilities. But even those sectors are moving down in pre-open trading. It’s not just stocks, pretty much every commodity is in a free fall. Implied volatility is rising rapidly (see page 2). This is good for our open straddle positions, but it makes entering a new straddle difficult. The rising options prices are good for option selling strategies, but we need to wait until we see signs that the rise in volatility expectations are fading.

With the cascading drop in the market this morning, we are not going to panic. We are very comfortable with the trades that we have open. We’re not going to enter a new trade today. Instead, we are going to be patient and alert while we wait and see how the market digests all the news. We need more clarity before we enter a new trade. Investors will be watching FOMC speakers Mary Daly and Austin Goolsbee closely for hints about when the Fed will lower its key interest rate.

If you’re thinking about taking profits from those gigantically profitable straddle trades that are open, be sure to tune in to our coaching session tomorrow where we’ll discuss how to take profits while keeping your position open and letting your profits run.

This chart shows the expected volatility for today. Because Cboe doesn’t publish the 1-day VIX until regular trading hours, we’re using straddle prices of SPX options in the pre-market to make that proprietary and unique measurement. And right now, SPX straddles are priced about 1.785% of the forward price, which translates into a volatility of about 40%. That forward price is already down about 217 points. That means options traders are projecting a 2/3 chance that SPX will finish somewhere 5,000 and 5,130.

This is the highest volatility and the widest expected range since the bank failures in March 2023.