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Leveraging Up: There Are Now More Options Being Traded In The Market Instead of Shares Of Stocks

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Speculative juices are flowing in the market. You know that this rally has excited millions and at first that excitement flowed into the crypto virtual coin market when this year began. I’m sure you saw Bitcoin bulls, who had been gone for over a year, reappear early this year on social media, trying to guilt trip people into buying Bitcoin, claiming it would go to a million.

That’s what Cathie Wood, a leading prophet of the movement of financial nihilists, said, with her Bitcoin one million prediction, but now the speculative juices have flowed into options trading.

The ratio of trades that are in options instead of stocks has now passed the 100% mark, meaning more people are trading options than shares of stocks of now.

That’s wild.

Before 2020, you almost never saw that.

Part of the reason is the growth in trading apps, that are designed as if they are sports bet gambling apps, such as Robinhood, luring people into the markets, encouraging options trading, but another reason is that higher interest rates has caused the interest on margin debt to grow.

Most people don’t want to pay 10% interest on margin debt.

That’s caused the amount of margin debt in the market to go down in the past few years, as you can see from this chart from Advisor Perspectives.

In the past, margin debt levels would rise with the stock market, and actually surpass it in making new records too, but that hasn’t happened with this cyclical bull market that started in late 2022.

Obviously, there is a large segment of traders, who in the past used margin to leverage up and gamble in the markets, and are now using call options instead.

Option trading is tough and tricky, because you don’t only have to bet on the price going your direction, but it has to happen before the options expire, and you have to factor in the price for volatility you are paying for the option too into the price you pay for the options, which is something few option traders even think about at all.

That’s one reason why 90% of all options expire completely worthless, but they are perfect instruments for the financial nihilist, even if there are ways to use options conservatively.

The philosophy of “number go up,” has led many to leverage themselves up too.

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And…..

We finally got a hefty down day in the metals markets, as the price of gold fell over $33 to close below $2400. Copper got smacked for a 5% loss, but it has been the most volatile of the precious metals complex to the upside, so far this year.

Maybe this is finally going to be a pullback or pause for the metals.

Traders and investors need one for an entry point.

Maybe gold will test it’s 50-day moving average, now trading at $2312, but that moving average is quickly moving up toward $2350.0

I loved the pause we got in March.

Gold only pulled back $50 that month and made for a very narrow consolidation channel.

It’s where I made my last buys in gold and silver.

After that breakout I stopped making Youtube videos about it, as I thought that was going to be the best trade entry point in anything for the rest of the year.

Silver was trading under $26 at the time, and now, even with yesterday’s pullback, silver remains over $30 an ounce this morning.

Notice how the 150 and 200-day moving averages for gold on the above chart are now slowly trending up……

-Mike

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