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How High Can Stocks Go?

by | Tips & Strategies

Infinity. Stocks can theoretically go infinitely high. Anyone who’s looked at selling calls or shorting stocks might know this fact given the ominous -∞ that sits next to their maximum loss potential. Hmm…well then how can AAPL be worth more than any other company in the world at a relatively small price of around $130? AMZN is above $3,000. Berkshire Hathaway A shares are above $350,000!*

Companies can split their stock (AAPL has witnessed five splits); stock splits increase accessibility to the everyday trader while reducing similarities between the stock price and Icarus, both reaching for some unachievable, unwieldy goal.

The Days Between (Stock Crashes)

The stock market** has officially “crashed” four times in the last forty years: 1987, 2000, 2007, and 2020. From crash to crash, stocks have put in new highs ranging from 2.5% to 355% relative to the most recent new high prior to crash. Small Stocks 75 (SM75) is already up 24% from the all-time high it posted just before 2020’s fall.

Practicalizing Infinity

“Infinity” for SM75 rests somewhere between 55 and 250, given the historical context above. How can the everyday trader rein in this still-wide margin of error when selling into a new stock high? Decreasing size can be a great place to start. Simply transferring shorts to Small Exchange futures or ETF options from large, traditional futures can go far to increase the durability of your positions.

Reduced-size trading provides traders with a multitude of trade management options, and the ability to diversify holdings. Learn more about how bigger isn’t always better in our guide >>

Stocks always manage to fly too close to the sun at some point…it’s just a matter of being around when they come back to earth.

Waiting for Crash (Small Stocks SM75)

Small Stocks
Source: dxFeed Index Services (https://indexit.dxfeed.com)

 

*All stock prices as of 2/3/21
**S&P 500 index data from Yahoo! Finance (https://finance.yahoo.com/)

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The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

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