Will there be a repeat of the Brexit dip if the wrong person comes out on top in the French elections? Nobody knows but analysts are saying the European markets could move 5% to 10% with the direction depending on the outcome.
With the earnings calendar knocking out 75% of the available stocks, I am going to recommend an ETF to profit from any post election volatility.
I am also adding a play on the oil ETF to profit from a rebound from last week's crash.
NEW BULLISH Plays
IWM - Russell 2000 ETF - ETF Profile
The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities. Description from iShares.com
The Russell 2000 has been moving sideways since early December and has tested both sides of its range multiple times. Over the last several days the Russell has shown good relative strength to the big cap indexes. The index gained 17 points on Wednesday and recovered from a 15 point dip on Friday to lose only 4 points.
I believe any post France volatility will be brief. If we see a Brexit like dip, it should be a buying opportunity. If we see a positive result, we could see resistance broken and a new leg higher.
The fly in this soup is the potential government shutdown in the U.S. if the parties cannot come to an agreement by Friday or pass a short-term continuing resolution while they battle it out. The market will not care how long it takes to work it out as long as there is an agreement to keep extending the deadline until the problem is solved. The republicans have learned they do not want to shut down the government. Hopefully enough democrats have learned that same lesson and we will not have that same problem again.
I am going to profile two positions. ONLY ENTER ONE.
If the market opens higher on Monday, we will buy the June $140 call option, currently $2.13.
If the market drops and the ETF trades at $135, we will buy the June $138 call option.
By using the ETF we are insulated from the individual earnings announcements and the single stock volatility.
Once we are in the position I will assign a stop loss. Since there could be significant volatility on Monday, I do not want to be in and out on the same day.
With an IWM trade at $137.65, buy June $140 call, currently $2.13. No initial stop loss.
With an IWM trade at $135, buy June $138 call, estimated $2.00, No initial stop loss.
USO - US Oil Fund ETF - ETF Profile
The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate ("WTI") light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.
The investment objective of USO is for the daily changes in percentage terms of its shares NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.
USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.
USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.
Oil prices fell -6% last week after Wednesday's inventory report failed to show a significant decline in crude inventories. Complicating the problem was the expiration of crude futures on Thursday. That means everyone long for the EIA report had to dump their position immediately to avoid expiration.
I expect the price of crude to return to $54 over the next several weeks. That equates to $11.25 or higher on the USO ETF. The ETF closed at $10.32 on Friday. I am recommending we buy the $10.50 call, currently 42 cents and plan to double our money and exit.
Oil prices will rise because refineries are restarting production after their normal two-month maintenance period centering on March. Oil inventories will begin to decline sharply in the coming weeks as they begin to fill the system with summer blend fuels before Memorial Day.
You could also just buy the USO ETF for $10.32 but you will get a better return using the option. I would not recommending buying a $10 stock with the intention of making 75 cents.
Buy Jun $10.50 call, currently 42 cents, no stop loss.
NEW BEARISH Plays
No New Bearish Plays