The U.S. stock market seemed to be on good footing headed into spring, but the slide that began last week continued as technology and consumer shares dropped before the start of corporate earnings season, according to Bloomberg. Stock options traders need to be on the lookout for clues as to which way major company earnings reports will trend, as this can enable them to predict market volatility.
For example, if traders believe technology and consumer shares will recover from the recent slide, a digital option can be used to profit from these market fluctuations by placing a call on a certain stock. Essentially, this means an investor believes a stock will end up above the entry price after the expiration of the contract.
Kate Warne, investment strategist at Edward Jones & Co., told Bloomberg this market slide could impact investors in a number of ways.
“Will investors see this as an opportunity to buy the dip, or do they stay on the sidelines and wait to see earnings strength in the first quarter?” Warne said. “The fundamentals remain pretty good, but sentiment can change quickly, as we saw on Friday.”
According to USA Today, stocks that took the biggest hit were those that had been on hot streaks, including Facebook, Tesla and Amazon. More positive economic reports could help reverse these declines. For example, if consumer spending and employment pickup in the coming months, technology and consumer shares may rise.
Stock options traders should be on the lookout for signs that the economy is improving. For instance, numerous publications, such as Bloomberg, report estimates of spending and employment, which could prove helpful when trying to trade profitably.
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