Volatility produces great short opportunities (that you can capitalize on if you have the correct broker with premium locates.)
Sometimes a stock with no real credible news can squeeze and ignite a sector but this time we saw a genuine reason for momentum.
Let’s break down the context, reason, and opportunities we’ve witnessed over the last few days.
What’s behind the stock-market rally?
In response to the Russia/Ukraine conflict, oil prices are surging to new highs not seen since 2008, as the market panics over supply and demand. CNN Business reported:
Global crude oil prices surged to more than $110 per barrel and the cost of natural gas skyrocketed to a new record in Europe on Wednesday as Russia's escalating military campaign in Ukraine stoked fear in markets about a supply shock.
Brent crude futures, the global benchmark, jumped nearly 9% to $113.65 per barrel, the highest level since 2014. US oil futures also gained more than 8% to trade at $112.25 per barrel. In Europe, the price of wholesale natural gas spiked 60% to a record high of €194 ($215) per megawatt hour. That's more than double where it stood last Friday.
Now, let’s see how this is affecting day-trading in the stock market with a particular focus on the small-cap world where day-traders enjoy the most volatility.
How it’s affecting sector related stocks.
An Investor Palace article explains more, looking at $IMPP below:
The higher oil prices go, particularly in the near term, the higher demand will be for Imperial Petroleum’s services. Today, calls for $200 oil via the options market have sent investors looking for alternative ways of playing this trade. One such interesting vehicle is IMPP stock.
Now, whether $200 oil materializes or not remains to be seen. Options volumes can sometimes reflect where traders see a specific commodity going. However, in many cases, these bets are simply hedges against “worst-case scenarios” that may or may not play out. That said, there could be significant demand for short-term oil storage in the near term. And today, investors are buckling in and betting on IMPP stock as an interesting way to gain leverage to this trade.
$IMPP is absolutely not the only runner in this sector with $INDO and $HUSA being two more running in parallel. Let’s take a look at some trading-charts to analyse the volatility.
A volatility check on ZeroPro.
$INDO previously was a stock sitting comfortable in the $5 USD price range before squeezing all the way up to highs of $86 USD per share - a 1,520% move.
$IMPP also caught fire in recent days, joining the momentum, with a ‘smaller run’ than $INDO. However, it can still be considered huge volatility, making a 500% leap from $2 to $10 in a matter of days.
$HUSA was one of the last in the sector to take off but it did with style, running from $1 USD to as high as the $16s at its peak today, generating a 1,500% move across just three days.
When to take the short-sell, day-trade (focusing on $INDO)
It’s difficult to know when the stock is due to reverse from a long trade to a short trade.
$INDO was definitely one of the more tricky stocks to predict because in the pre-market action (March 7) it had already moved 400% from the $10s to the $40s. It could have been considered an over-extended short.
However, when a stock holds its range/consolidates in the opening hour of the trading day, it can often be a sign it’s about to squeeze much higher. This is due to shorts that are betting on a first red day rushing on top of one another to cover.
It’s better to wait until the following day in the hope that some resistance has formed, ideally the previous day.
As you can see by the second red box in the display. It didn’t hold support the next day because there was an immediate sell-off.
The first red day on $INDO reversed from the $80s to as low as $32, creating a massive 60% potential gain if you timed it perfectly.
Day-trading notes/lessons I’ve learnt from the oil run.
- You absolutely don’t need to catch the top, so don’t be caught front-side (easier said than done).
- These multi-day, hot-sector, runners can climb much higher than you might expect, so don’t hang around if the stock is consolidating around the time of the market open.
- A 300 – 500% extension in a few days on a stock doesn’t mean it’s up too much. A stock is never a good short (just) because it’s up too much.
- Be particularly cautious shorting hot sectors with a powerful catalyst, such as the panic around supply of oil, which garners global attention.
And that’s a wrap. If you have any comments drop me a message on Twitter @Jonk87. Thanks for reading.
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