Oil and gas concern EQT Corporation (EQT) has had a volatile run on the charts during the past several months, with two recent attempts to recapture its Aug. 10 annual high of $17.97 rejected by the $16 level. While this level is still keeping a tight lid on the shares, which are up 1.3% at $15.61 today, plenty of support is in place. Keeping some wind at the security’s back, EQT has just come within a chip-shot of a historically bullish trendline that could help EQT topple this recent ceiling.  

The trendline in question is EQT’s 160-day moving average. According to a study from Schaeffer’s Senior Quantitative Analyst Rocky White, the equity has seen two similar pullbacks to this level during the past three years. One month after both of these signals, EQT was higher, averaging an impressive 22.9% return. From its current perch, a similar move would put the equity at $19.18 – well past its mid-August peak.

An unwinding of pessimism in the options pits could also give the security a boost. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EQT sports a 10-day put/call volume ratio of 1.04, which stands higher than all but 2% of readings from the past 12 months. This indicates that puts have been picked up at a much quicker-than-usual clip, leaving room for call traders to enter the ring.

That being said, now looks like an opportune time to get in on EQT’s next move with options. The equity’s Schaeffer’s Volatility Index (SVI) of 64% stands in the low 8th percentile of its annual range. This means options players are pricing in relatively low volatility expectations at the moment. What’s more, EQT’s Schaeffer’s Volatility Scorecard (SVS) ranks at 79 out of a possible 100, suggesting the stock tended to exceed these expectations during the past year – a boon for option buyers.

Electronic Arts Inc. (NASDAQ:EA) is up 2% at $138.50 this morning after inking a deal with Codemasters. EA is set to acquire the U.K.-based company for $1.2 billion, outbidding rival Take-Two Interactive Software (TTWO). The news has EA pacing for its seventh straight win -- its longest streak in over four years -- should these gains hold. 

The security's 10-day moving average has acted as a ramp for this recent rally, guiding EA to a 27.5% year-to-date lead. While the security has yet to topple its early August peak, its sharp bounce off the $110 level just launched EA back atop its 80-day moving average, which acted as pressure on the charts following its early September selloff. 

Analysts are mostly optimistic on the equity, though there's still room for upgrades. Of the 20 covering Electronic Arts, nine still say "hold." Plus, the 12-month consensus price target of $147.53 is a slim 6.9% premium to current levels. 

Options traders, meanwhile, have been extremely bullish, with 4.12 calls picked up for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past 10 days. This ratio stands in the 97th percentile of its annual range, suggesting a greater-than-usual appetite for calls of late. 

This optimistic sentiment is pervading the options pits today, too. So far, 3,390 calls have crossed the tape -- double the intraday average -- compared to just 718 puts. The December 140 call is the most popular, followed by the weekly 1/29/21 135-strike call, where positions are being opened. 

AES Corporation (NYSE:AES) is a global energy company that generates and distributes electrical power. AES is one of the world's largest power companies, generating and distributing electric power in 15 different countries and employing more than 10,000 people all across the world.

On Dec. 7, the Board of Directors of AES announced an increase of 5% in the company's quarterly dividend for AES shareholders, from $0.1433 per share to $0.1505 per share This increase will go effect beginning in the first quarter of 2021. AES has a forward dividend of $0.60 and a dividend yield of 2.85%. AES stock has regularly paid a quarterly dividend since 2012 and has nearly quadrupled its dividend since its initial payment of $0.04.

On the charts in the last month, AES has been able to distance itself from its year-to-date breakeven level. This culminated in a Nov. 9 13-year high of $22.32, with shares' ascending 30-day moving average cleanly catching pullbacks since June. 

The energy stock also has an impressive forward price-earnings ratio of 13.66 and continues to grow its dividend at a pretty fast rate. However, that ends the fundamentals-focused list of positive attributes.

AES has simply not fared to well over the past few years from a fundamental point of view. The company’s revenue have been in a constant state of decline, ultimately dropping its revenue from $13.6 billion in 2016 all the way down to $9.5 billion in the past twelve months. In addition, AES’s balance sheet is of major concern for potential investors. AES has massive $21.35 billion in total debt paired with just $1.89 billion in cash.

However, regardless of if the fundamentals align for long-term investors, there is always an options strategy to use. Now looks like an opportune time to get in on AES' next move with options. The equity’s Schaeffer’s Volatility Index (SVI) of 32% stands in the low ninth percentile of its annual range. This means options players are pricing in relatively low volatility expectations at the moment.

Plus, AES currently ranks high on the Schaeffer's Volatility Scorecard (SVS), with a score of 89out of 100. This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. High SVS readings indicate consistently realized greater volatility than its options have priced in -- pointing to AES being a potential premium-buying candidate, rather than a premium-selling candidate.

“… many sentiment indicators we track are displaying levels of optimism that have historically made stocks vulnerable to pullbacks. Or, at best, vulnerable to a period of underperformance.…if you are looking for an area that the SPX might have to move below before risk grows of an unwind of the growing enthusiasm we are seeing at present, I think the 3,550-3,580 area is a good starting point…Do not disturb long positions, as the trend is your friend and market enthusiasts have been given no reason to panic. But with the CBOE Market Volatility Index (VIX -- 20.79) at four-month lows, you could hedge long positions in recognition of the sentiment-based risk.”

-  Monday Morning Outlook, Dec. 7, 2020   

The CBOE Market Volatility Index’s (VIX -- 23.31) pullback to multi-month lows proved to be an opportune time to hedge long positions. That is, if the decline in equity’s last week continues in both duration and/or magnitude. 

In fact, as you can see on the chart immediately below, after the VIX peaked at 40.28 in October (a level 200% above its 2019 close), it has found support at the 20.14 area, which is not only half of its October closing high, but also an area that is roughly 50% above its 2019 close of 13.78.  

As a side note, I have been monitoring the VIX’s 30-day moving average for the past several months, as I find it intriguing. Most interesting of late is the “fear gauge’s” Friday failure at this declining moving average -- which could be hinting that the VIX’s pullback will be shallow.

Last week’s pullback may not have been a huge surprise, given the sentiment-based risk, and especially, if you have been in touch with the weakness stocks typically experience in the first half of December.  

Plus, multiple equity benchmarks are simultaneously flirting with round-number psychological resistance levels such as the 3,700 level on the S&P 500 Index (SPX -- 3,663.46), the 30,000 area on the Dow Jones Industrial Average (DJI -- 30,046.37), and the $300 level on the technology-heavy Invesco QQQ Trust Series (QQQ -- 301.85) exchange-traded fund (ETF).

Last week’s decline was hardly enough to get the bulls’ attention, as the SPX did not break below its 20-day moving average and remains above November’s close of 3,621.63 (implying it remains positive during a normally weak, two-week period). Even if these levels were to break, there is potential support in the 3,550-3,580 area as I discussed in detail last week.

In fact, after tomorrow’s trading, we enter a historically bullish seasonal period for the SPX, as the second half of December historically produces bullish price action. Per the table below, if the SPX closes the first half of the month positive, but by less than 2%, the expectation would be a lower-than-average return in the second half. As of Friday’s close, the SPX was up 1.1% for December. 

A weaker-than-average second half of December would not be a huge surprise, given the optimism that continues to prevail among short-term traders. This suggests positive news is being factored in, leaving the market more vulnerable-than-usual to negative headlines.

This week brings us standard December expiration. One interesting thing to watch involves the huge call open interest at the SPDR S&P 500 ETF Trust (SPY -- 366.30) December 363 and 364 strikes, with Friday’s SPY close at $366.30. 

Most of the open interest came on at this time last year, when a 160,000 contract debit spread was put on for about 13 cents, with the SPY around $317. The maximum value of this spread that occurs is $1.00 (difference between strike prices), and this happens if the SPY trades at $164 or higher on expiration Friday. This trade is likely fully hedged, but an early unwinding of the position or a move below 163-strike could be a headwind.  

Other than that, I would not expect anything like December 2018 from purely an option-related and monetary perspective. When an already weak stock market
(due to a Fed rate hike amid China-U.S. trade uncertainty) contributed to a massive sell-off (driven in part by delta-hedge selling during expiration week), the SPY moved below heavy put open interest strikes and the put sellers were forced to hedge their positions by shorting S&P futures.

We are entering a period of bullish seasonality and the technical backdrop continues to confirm the optimism that we are seeing among short-term traders. But this optimism presents a risk to the bullish case, so keep those hedges on that you put on last week or the week prior. 

Small caps may be the biggest area of opportunity, as measured by the iShares Russell 2000 ETF (IWM -- 190.30) and Russell 2000 Index (RUT -- 1,911,69).  With the IWM and SPY experiencing about the same performance in 2020, there is much more short-covering potential in the small-cap area relative to large-cap stocks. 

Note in the graphs below that SPX component short interest is at a multi-year low after significant short covering since the middle of the year. There has been short covering in the small-cap space since July too, but note how total short interest on components of the RUT is still nearer to multi-year highs, suggesting the shorts could be in the early innings of covering.

Todd Salamone is Schaeffer's Senior V.P. of Research

Continue reading:

•  The Week Ahead: Busy Week Ahead with Fed Meeting, Manufacturing Data

• Indicator of the Week: Breaking Down SPX Performance in the Second Half of December

Stocks closed out the week last week mostly lower, with the S&P 500 and Nasdaq both logging their third-straight weekly losses. Last week's outlook for additional fiscal stimulus remained murky, as the $908 billion bipartisan proposal continued to not receive Senate Republican support. The House managed to pass a one-week federal spending extension to avoid a government shutdown through this week, giving lawmakers more time to negotiate further stimulus measures. Final FDA approval of the Pfizer vaccine should result in the first broadly distributed vaccine doses within the U.S.

The Dow Jones Industrial Average (DJI - 30,046.37) added 0.2% on Friday, and fell 0.6% for the week last week. The S&P 500 Index (SPX - 3,663.46) dropped 0.1% for the day on Friday and the Nasdaq Composite (IXIC - 12,377.87) shed 0.2% on Friday. The indexes fell 1% and 0.7%, respectively, last week. The Cboe Volatility Index (VIX - 23.31) added 3.5% on Friday, while finishing last week 12.1% higher.

Market activity is ramping up before the end of the year, with a number of economic indicators for investors to analyze as they hit December's halfway point.  Today, investors can expect the monthly oil market report from the Organization of the Petroleum Exporting Countries (OPEC). There is a small handful of earnings reports today due out today.

For your convenience, we have rounded up the one company slated to release earnings today, December 14:

EZCORP, Inc. (NASDAQ:EZPW -- $5.10) provides construction products and services to public and private infrastructure projects. EZCORP will report its fourth-quarter earnings after the market closes today.

Here is a quick recap of how Friday's earning call played out:

Construction Partners, Inc. (NASDAQ:ROAD -- $483.7429.11) provides construction products and services to public and private infrastructure projects. Earnings per share rose 6.25% over the past year to $0.34, which beat the estimate of $0.30. Revenue of $224,645,000 declined by 5.34% from the same period last year, which missed the estimate of $241,500,000.

Looking ahead to tomorrow, the day will be much busier, with the Federal Open Market Committee (FOMC) two-day meeting kicking off. Industrial production and capacity utilization data are also due out. In addition, the import price and Empire State manufacturing indexes are on tap. As for earnings, there will be another small handful released on Tuesday.  All economic dates listed here are tentative and subject to change.

Options strategies are great tools for diversification of your options trading portfolio. Diversification means that a traders includes a variety of options buying and options selling strategies as tools for protecting and growing his portfolio. As a beginner cruising through a long list of options strategies, you may find it difficult and overwhelming to navigate all of the options. Schaeffer's Investment Research, the best options newsletter publishers in the world, can help you.

Choosing from strategies suitable for bullish markets, bearish markets, high volatility, sideways, and unknown environments and then following the strategy for optimization can prove to be quite a task. It is especially important to make an informed decision about which options strategies to include in your trading portfolio.

It is critical to start with identifying your goal with options trading. Once a goal is defined, only some of the strategies will be suitable for your desired approach to portfolio growth. In this article, we have compiled a brief overview of the best and easiest-to-execute options trading strategies for beginners.

In addition to defining a strategy, we strongly recommend that you go beyond this overview and consider subscribing to the best options newsletters available on the market. Options newsletters will grant you access to expertly timed trade recommendations, regular deep-dives into the background of each trade, and insights into the current options trading environment.

Here are some of the most suitable options trading strategies for beginners:

Long Calls / Buying Calls

If you want to limit the risk and make the most of anticipated increasing prices, this options strategy is for you. With its unlimited profit potential, traders can earn many times their initial investment. On the flip side, the potential loss through a long call strategy is limited to your initial investment. In a long call strategy, the trader expects the stock price to surpass the strike price by the option's expiration date. If your option has yet to expire and you still expect an increase in the stock price ahead of the expiration date, then the long call strategy can prove to be an incredibly advantageous move. The best option newsletters for buying calls will provide you with professional advice on how to go about your long call strategy!

Long Puts / Buying Puts

Buying a put option is literally the opposite of buying calls. The trader now expects the stock price at expiration to be less than the current strike price when buying a put. Buying puts allows traders to take advantage of the falling prices in the market while still capping potential losses. Unlike the long call strategy, the potential profit and potential loss are both limited when buying put options. Furthermore, if the stock finishes at or above the strike price, the put contract expires and loses its value. Consider joining the best options newsletter to best navigate the utilization of put buying in your portfolio.

Covered Calls

Simply put, the covered call is a much safer strategy than selling a call option. Covered calls can prove to be a beneficial strategy for generating income if you already own the underlying stock and you do not expect any considerable increase in the stock price over the duration of implementing this strategy. A covered call will limit the profit potential, unlike simply buying a call or a put, but will also provide you with downside protection in case you are wrong about the underlying stock price. If the stock price is above the option's strike price at expiration, the owner has to sell it to the buyer at the strike.

Short Puts / Selling Puts

When selling a put, the trader expects the stock price to be higher than the purchased strike price at option expiration. This is the opposite of a long put strategy. The trader should ensure that they have sufficient equity to purchase the stock if it is offered to them, requiring a sufficient margin account. This is because, if the stock price is lower than the strike price on the option expiration date, the trader must purchase the stock at the chosen strike price. Scheffer's, the publisher of the best options newsletters, has programs specifically designed around selling puts and taking advantage of low volatility in the underlying that will guide you through the process to profitability.

Buying Protective Puts

A protective put is a long put that comes with downside protection. If the underlying stock price is above the strike price at expiration, the protective put expires without value. However, the trader has the advantage of the increased underlying price. On the other hand, if the underlying stock price decreases, the loss on the play is mostly covered by the gain from the put option. Thus, buying protective puts is a particularly good risk-management options trading strategy as it allows for hedging against a short-term decline in share price.

No matter which options trading strategy matches your current investment goals, subscribing to an options newsletter can prove greatly beneficial to rapidly increasing your learning and providing you with support to become the best options trader possible. The best options newsletters provides not only trades based on proven techniques, but also a complete deep-dive into every trade driver with full transparency for its subscribers.

Schaeffer's trading programs, including a custom trading handbook for each strategy, all fulfill the criteria and more, offering a comprehensive commentary and easy-to-execute trade recommendations each month. Consulting Schaeffer's, the best options newsletter publisher in the world, will significantly enhance your trading experience. Happy trading!

Trading options can be a complicated process as a lot of options strategies are available and traders need to evaluate all of the possible routes ahead of executing a trade. As such, Schaeffer's are starting a new educational series titled Optimizing Your Options Strategies. The beauty of options trading is that there are options strategies for every market environment. In this series, we will cover all available options strategies for an educated trader to consider when identifying trading opportunities.

In this article, we will be talking about one of the most popular options strategies known as Married Puts. When using a married put options strategy, traders hold a long position in a stock and also purchase an at-the-money (ATM) put option on the same stock in an effort to protect against potential downside in the short term, or against potential stock price depreciation.

A benefit of choosing married puts from the list of available options strategies is that the trader is able to cap his potential loss to a limited amount of money on the stock, in the worst-case scenario. This options strategy still allows the trader to participate in any stock price gains that happen as a result of stock price appreciation.