How to Handle Trading FOMO

How to Handle Trading FOMO

Posted On August 25, 2021 3:57 pm

After last week’s brief scare — to the tune of a 2% decline —  the stock market has saddled back onto the bull with the major indices hitting new highs. 

Last week, I referenced that while everyone was calling for a correction, measured as a 10% decline, every dip of just 2%-3% continued to be bought. We can bandy about the reasons; be it the Fed’s continuing liquidity injection, strong corporate earnings, and big monetary policy.  However, the main drivers seemingly returned to FOMO (Fear of Missing Out). 

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The concept of FOMO came into being in 2014 when interest fell to near-zero rates. There was a hiccup in late 2018 when Jerome Powell laid out a course of ceasing quantitative easing (QE) and raising interest rates, leading to the “Taper Tantrum.”  Afterward, Powell quickly backed off. 

spy etf stock chart august 2021

Currently, Powell has the cover of Covid to claim it’s premature to remove the interventionist policies such as buying mortgage-backed securities (MBS) or raising rates despite the strongest housing market in over 10 years and GDP and inflation growing at the highest rate in 30 years. 

This has led to much money sloshing around looking for a home. For traditional and elderly investors, this financial repression forces them into equities. Hence, while there are substantial fundamental reasons for being bullish on stocks, there’s also a strong element of both FOMO and also TINA (There Is No Alternative). 

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For younger and less averse people, this has manifested itself in the cryptocurrency and NFT market.  I have no doubt that blockchain and some form of crypto is the future with blue sky potential. However, the flipping of penguin and tulip NFTs for tens of thousands of dollars is something I can’t grasp. Perhaps, the irony of “tulip mania” seems cute to the younger generation, but it won’t age well. 

Anyhoo…. the above rant aside, the Options360 Concierge Trading Service keeps sticking to its knitting; waiting for good setups and using the power of options — for both leverage and income generation — to produce consistent returns.  Recent bullish portfolio additions have been McDonald’s (MCD) and The Trade Desk (TTD).  

As the then CEO of CitiGroup, Chuck Prince, said in 2007, as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”  Options360 won’t put itself in a position where FOMO leaves us stranded without a chair when the music stops. But, we also can’t be wallflowers.  Options360 will participate in a sensible fashion. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.