Stock market investing: How to trade as coronavirus volatility falls - Business Insider

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Morgan Stanley explains why the end of wild swings in the stock market is near — and shares the perfect trade to profit from the calm ahead

But before you get too familiar with extreme fluctuations, Morgan Stanley strategists are out with a reminder that this environment is not normal. They even take it a step further to argue that a return to some form of normal is coming over the next quarter. surged to levels that were matched only by previous crisis moments. In the thick of the sell-off last month, it spiked to its 2008 peak above 60.

Secondly, Sheets said a peak in new cases will likely come within the next two months. That development would begin to flatten the all-important curve and help more engines of the economy get restarted. On a related note, his third point is that the trough in economic activity would accompany the peak in new infections.

That range is unlikely — for a second time this year — to send volatility shooting beyond its most elevated level since the credit crisis, he added. His trading recommendation for more muted rallies is to enhance income byThis strategy involves selling options — bets on a rally in this case — that are believed to be overpriced, and it is most lucrative when the underlying security does not exceed the call's strike price.

Based on this range, Sheets shared the following recommendation: Sell one-year 110 strike calls on the S&P 500 . The risk to this trade is that the S&P 500 zooms past 3,250 and returns to its all-time high of 3,386.15.

 

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