The insurance space has quietly been lending support to the market. Jill Malandrino of OptionsProfits and Scott Redler, Chief Strategic Officer of T3Live, tell you how to position LNC for a trade and Skip Raschke gives you the bullish options play.
One thing that I believe is certain when it comes to trading stocks is that stocks go down much quicker than they go up! This is not true for all stocks -- just 99% of them! Accepting this potential as fact will help you to further understand why options volatility rises on down moves and falls on up moves.
Why this "going down faster than going up" thing is almost a certainty is due to various reasons such as: 1) selling any stock can be caused by many reasons while only one reason causes someone to buy a stock; 2) fear is a better motivator for stock price movement than is greed; and 3) mathematically it takes a greater percentage move to have a stock go up than to go down!
For proof of #3, consider a stock that is trading at $10 that drops to $8, falling two points, just declined by 20%. That same move from $8 up to $10, that two-point move, is a 25% move. Thus, both moves were the same two-point move, but the one going down moved 20% and the one going up moved 25%.
So many stocks have been battered over the summer months of this year that to even move back to their price levels of this past winter and/or spring is asking plenty! With the tide of the math moving against these battered stocks, each one will be studied fundamentally far more so than technically as they try to make up so much lost ground! Thus, if a stock cannot pass the fundamental test, you are wise to avoid being mentally if not financially trapped by its technical pattern.
Let's review the T3/OP video with Scott and Jill as they give a quick run down of trends in the insurance space and LNC in particular.
Fundamentally, I like Lincoln National ( LNC). LNC has been selling insurance since 1904. This year's earnings performance should come in with a 25% or more gain over that of a good 2010 performance! Management has been and is excellent or these percentage gains would not have been achieved during these rather difficult financial times. Yet, LNC has seen its stock price tumble from almost $30 in early summer, almost straight down to $14, where recently it has begun to gather upside momentum. At $20, LNC still trades under a 6 P/E multiple, growing its earnings this year at better than 4X that number!