While we aren’t expecting volatility to completely resolve itself just yet, the underlying market fundamentals still justify an overall bullish outlook.
As long as traders are swinging back and forth on inflation expectations, the major indexes will likely remain channel-bound. The bright side to this issue is that buying opportunities on the dips look good.
Our recommendation today is one that we have been watching for a while. ViacomCBS (NASDAQ:VIAC) has an ugly looking chart on the surface, but the story behind the big drop in March is not what you would expect.
Last March, a large and wildly mismanaged hedge fund (Archegos) was forced to liquidate, and its major holdings, including VIAC, Baidu (NASDAQ:BIDU) and Tencent (OTCMKTS:TCEHY), were dumped on the market.
This is a phenomenon called “forced selling,” which creates an artificial dip beyond what the fundamentals would justify. In the past, fundamentally strong stocks that go through periods like this base for a while and then regain lost ground.
In this case, we don’t think VIAC will get back to its prior highs for a while because trading in the stock before Archegos’ liquidation was much too hot.
However, we do expect the company to ride its exploding growth in streaming and advertising much higher than it is now.
The reason this is interesting for short puts is that the timing of that rally is always uncertain. So, short puts allow us to take advantage of the breakout whenever it happens because we expect the price floor to hold.
From a technical perspective, we anticipate support at $38 to hold, so we think setting a strike at that price level makes sense. That is an aggressive recommendation, but we feel it offers the best risk/reward profile right now.
We also think using a mid-June expiration is the best strategy right now, as that option chain offers plenty of option premium and gives the trade a whole month to play out.
On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.