The $450 Billion Elephant in the Room
The Big Picture in 5
Your 5-Minute Weekly Update on the World’s Biggest Trends and Opportunities
- The $450 Billion Elephant in the Room
Last year, the average daily notional value of all stocks was $405 billion. That’s a big number. But for the first time ever, stock options were worth even more than the underlying stocks. $45 billion more, to be precise. Single stock options trading was up a massive 68% from the previous year.
And the consequences here are … fascinating, to say the least.
Because with $450 billion in options trading hands, it follows that a large portion of stock demand would be the result of options dealers hedging their open contracts. This hedging inevitably moved the market — just like the tail wagging the dog.
So regardless of whether the stock market goes up or down, regardless of whether you’ve ever bought or sold options, it’s still crucial to keep an eye on this massive market. More and more investors are keeping an eye on options experts (like our own Clint Lee) to stay informed and one step ahead.
Because today’s options trades could potentially dictate how your stocks trade tomorrow.
- Multiply Your Portfolio Earnings
On May 20, Clint and Ted released a YouTube video predicting a bear market rally. It was a tough call in the moment — after eight straight weeks of losses, the longest consecutive downward trend for the Dow Jones since 1932.
If you had decided to take advantage of their insight with an exchange-traded fund (ETF) like the SPDR S&P 500 Trust (NYSE: SPY), which tracks the index, you would’ve seen a quick 5% gain in about two weeks. Not bad, especially for 2022. But if you had made the same play with a conservative option dated for November, you could’ve seen a staggering 60% gain in the same time frame!
“And with a closer expiration date, you could’ve made even more,” Clint explains. Options can be a powerful tool to protect your portfolio during down markets. They provide much-needed peace of mind, confidence and cash to help weather the storm. Stay tuned for more from Clint on how you can make the most of these powerful (but volatile) investments.
- Do Not Adjust Your Screens — You’re Seeing a 94% Loss for Amazon Shares!
But you’re only seeing it because of a “glitch” in the tracking software used by Google Finance and other websites:
Amazon just completed a stock split, its first in years, at 20-to-1. That means everyone holding a single share of Amazon now holds 20, and various online brokerages/finance sites have yet to update their data. Stock splits like this help make individual shares more accessible and improve investors’ ability to fine-tune their purchase. It’s not unlike getting free shipping with Prime.
Even though this drastically reduces Amazon’s individual share prices, the measure is still a temporary one. Morningstar sees Amazon’s fair value at $192 per share, with the company’s fortunes set to rise as e-commerce increasingly replaces brick-and-mortar shopping.
- Oil Back to Invasion-Era Highs
And unfortunately, prices are likely to stay high.
Russia’s war in Ukraine recently passed its hundredth day with no real end in sight — and the same can be said of European sanctions against Russia’s oil exports. With demand still high and alternatives slow to roll out across Europe, energy prices will likely remain high for the near future.
Traditional oil and gas investments have been star performers throughout 2022.
The SPDR S&P Oil and Gas Exploration ETF (NYSE: XOP) Clint recently recommended has gained an impressive 67% over the last year. But Ted believes there could be a $16 trillion energy revolution coming from an unlikely source.
What’s more, Elon Musk and Bill Gates both agree with him.
- Capitulation or Just Common Pessimism? A Gloomy Chart of the Week
Capitulation has become a byword over the last few weeks, one that Clint covered in depth in last week’s Friday video.
One strong indicator of capitulation is sentiment. The prevailing logic dictates that the gloomier consumers feel, the closer we are to capitulation and to an eventual recovery in stock prices. If that’s accurate, we might already be there:
Unfortunately, sentiment is just a single indicator. As you can see from the chart, we’ve had multiple periods of prevailing pessimism — and they don’t always line up with a stock market crash (folks stayed relatively optimistic through the 2008/2009 crash, it looks like).
We’ll be keeping an eye out for more signs of capitulation in the coming week.
Have any feedback on the new format? Let us know what you think, or what you’d like to see, by emailing BigPictureBigProfits@BanyanHill.com.