Spotting Rogue Waves That Create Profit
October 10th 1903. They were only four hours away from their destination. Then it hit – a rogue wave.
It was at least 50 feet high and struck the Etruria on the port side. First class passengers adjusting their monocles, sipping their tea and eating crumpets got the full brunt of the wave.
Watch a stock or instrument and you’ll see a rogue wave event. One that sends price, crumpets and tea flying for traders in an instant. You can either be on the lookout for these price waves and ready to profit – or you can get broadsided and be left picking up the pieces.
Fortunately, there’s a way for you to screen for these events using volume. Where’s there’s volume, there’s action — and where there’s action, there’s premium to take advantage of in the pricing chain.
Events that broadside options chains every day
The ship epitomized the luxuries of Victorian style. Heavy velvet curtains, ornately carved furniture, huge expansive spaces. All the trimmings of a first-class experience that you’d be hoping for. Even the second-class accommodations were very nice. The wave that was coming its way could have cared less.
Like your beautifully constructed trade on a stock that you’ve been watching for years – the rogue event that’s looming just doesn’t care. These events take all forms and they’re nearly impossible to track or predict. Earnings misses, product recalls, passengers being dragged off of planes. Almost like a meteor, they come out of nowhere.
Despite this, many traders simply ignore the reality that these rogue waves are out there. Worse, they miss an opportunity to take advantage of these moments and trade with the pricing windows they create.
Watching waves for the right level of opportunity
For years, many thought that rogue waves were more folklore than reality. That is until Lituya Bay generated a wave that was 100 feet high after an earthquake. It managed to level trees as it ran 1,700 feet up the side of a mountain when it came ashore.
Looking for rogue waves to trade? Look for big-volume movers based on event news. These are the mega events that come out, rattle the market and create opportunity. If you’re looking for big news gainers and losers – simply watch for the ones that have a volume wave north of 1 million.
Perfect example: JCP and their bad earnings announcement. You don’t even need to read the article to see that a rogue wave has just hit. Share price is already on the run and now opportunities have been priced into the options chain. You now have a chance to make your move.
Taking advantage of the aftermath
The Etruria did see its day in the sun. Several actually. At her height, she ferried a 20-year-old Winston Churchill, then a lieutenant, to Spain. It would be his first of two trips on the now famous ship. With no sign of the troubles ahead, the ship sailed the seas magnificently.
When news hits, you can enjoy trades that take their turn in the sun. This is for two reasons. First, the options chain, which may have been previously dormant, now has opportunity priced into it. You can now apply vertical spread strategies that have limited risk and attractive upside.
Supporting this attractive pricing, you now also have a trend that’s been set in motion. Based on the severity of the news you can now ride this trend in the direction of your spread – even on a short-term weekly. Watch JCP in the coming week(s) and see what this earnings rogue wave does to the share price – barring any new waves that may come up.
Trade with the rogue news, don’t get swept aside
It was a bad run for the Etruria that year. Earlier it managed to run aground and had to be pulled out before departing New York. It was finally put out of its misery in 1909 when it was sold for £16,750 – just under £2 million pounds today, adjusted for inflation.
Don’t leave your options trading strategy to luck, or a rogue wave event. Track your stock or instrument’s news to the point where a restraining order might be required. Look for big-volume movers based on events that come out. You’ll find that just about anything can trigger these, depending on the stock. A bad earnings report, analyst upgrade, or better yet – M&A activity.
Jump straight to the options trade and take advantage of the pricing that’s been handed to you. Prepare for a correction back to the consolidation zone and plot your exit accordingly.
Let others search for their drenched crumpets while you reach for profits.