Don’t Fear Election Uncertainty – Hedge With a High-Probability Strategy This Halloween Happy Halloween! Who’s afraid of a few election ghosts? With the big day just around the corner, election anxiety is so thick you could cut it with a knife. But here’s the thing – we’re all in the same boat. Sure, markets will likely be volatile in the days ahead, and perhaps even in the days or weeks following election day. But that’s not unusual. And remember, historic market seasonality strongly suggests that we’ll see a post-election rally unfold right on schedule – and carry us straight through the year end: 
If history repeats itself – as it has nearly 80% of the time – then the worst thing an investor can do right now is let fear get the better of them. This is not the time to make drastic changes to your well thought out investment plan. Instead, my advice is simple: Just go with the flow. But if that’s not enough, you can always hedge your bets so you can sleep well at night – just in case. Here’s how the pros do it: 
This chart tracks the positions of hedge funds. And right now, leveraged long/short hedge funds are more net-long (or bullish) on stocks than they’ve been in three years, as the blue line shows above. You can chock that up to this year’s unstoppable market rally. Momentum is a powerful force for trend-following fund managers, after all. But in the lower pane of this chart, notice that hedge funds’ net-long position in the CBOE Market Volatility Index (VIX) futures, shown in black, have also reached a multi-year high. In other words, hedge funds are betting big on a post-election rally in stocks, while hedging with long positions in VIX futures and/or call options. And here’s the good news: We can play the same game as these billionaire hedge fund managers. Let’s pull up VIX in the Stock Analyzer on TradeSmith Finance, and I’ll show you how: 
To follow along, you can simply look up the VIX call option chain on TradeSmith Finance, by typing the symbol into the search bar at the top right. Once you’ve opened VIX in the Stock Analyzer, click on Options > Buy Call and you’ll see all the available options for the index, organized by strike price on the left and expiration date across the top. Please note: If you don’t see an Options tab when checking tickers in your TradeSmith Finance dashboard – and would like to – call 888-623-0858 to learn how. I’ve chosen the highlighted VIX 27 Nov. $21 call option, which has a 58% Probability of Profit (POP) and will cost you $280 - which is also the maximum amount you can lose if nothing bad happens post-election and the VIX doesn’t rise. VIX calls like this one are a relatively cheap and easy way to hedge your portfolio against the possibility – however small – of post-election chaos. And if that chaos does happen, you can bet your bottom dollar that VIX will move a lot higher. And if VIX does spike higher, to say around 60 or so – as it did in early August – this $21 call option could reach an intrinsic value of $3,900. That’s a potential 1,290% return on your money. But don’t get too excited: keep it firmly in mind that this likely won’t happen. And that’s reflected in the option analysis you can see above: A 58% POP score is barely better than coin flip odds. And if things stay calm post-election, this option will probably expire worthless – and you’ll be out $280, or close to it. In other words, it’s a speculation play - a pure gamble. Yet, as a hedge to help protect a large stock portfolio, it may be a bet worth considering if you’re worried about election chaos. Buying call or put options can be a sound strategy for hedging your portfolio. However, you must recognize that the odds are stacked against you when buying options. Unfortunately, lots of folks trade options this way, using puts and calls purely for speculation. And many, if not most, of these trades have bad odds of paying off – often much worse than a 50/50 chance. That’s why for my money, being a seller of options – especially puts – is your best bet. Because that’s where you can get paid steady, reliable income on every option trade AND you have much better odds of success. That’s where our Constant Cash Flow strategy comes in handy. Designed specifically for selling put options, instead of buying them, Constant Cash Flow leverages our powerful Options360 system to scan the market for options trades with a high probability of profit for you, the seller – allowing you to get paid with every contract you sell. And that income earned in the process really adds up over time. Every day, Constant Cash Flow members receive an email that shows you exactly how easy it is to earn up-front cash consistently, with a new option trade to take. If you subscribe to Constant Cash Flow, Trade360, TradeSmith Essentials, or TradeSmith Platinum, you already have access to – and can take advantage of – these daily trade emails. If you’re not yet familiar with this income-producing program and how it works, here’s a real example of a recent trade alert. I’ll walk you through it, so you can see just how easy it is to start earning consistent income with Constant Cash Flow’s strategy: 
This Constant Cash Flow email hit member inboxes earlier this week – and it tells you everything you need to know to place the included trade quickly and easily. Note this, though: Constant Cash Flow alert emails hit inboxes daily, with trades based on market conditions at the time of delivery. So, I wouldn’t recommend trying to enter the above trade now. At the top of the email, you’ll find the most important info highlighted in blue: the recommended trade to place is to Sell GOOG $160.00 Put Expiring 22 November 2024. It spells out your best-case and worst-case scenarios upfront. The Trade Notes section gives you all the particulars about pricing and trade cost. While there is not enough space here to show you the entire email, let me show you the main highlight: The secret sauce is our proprietary, AI-powered Probability of Profit (POP) algorithm. This advanced tool scans thousands of stocks, and tens of thousands of options, to find the handful of put options that have a very high odds of success. 
Let’s break this down: - This trade boasts an impressive 86% POP, meaning there’s an 86% chance that GOOG stock will be above the $160 strike price by the expiration date on Nov. 22 – leaving this put option out of the money and the earned premium from the sale safely in your account.
- The return on investment (ROI) in this case is 6%. Keep in mind, that’s not an annual rate. It means you earn 11.6% on your money from this trade by expiration day, which is just 22 days away!
- If this option does indeed expire out of the money as expected, you’ll pocket the maximum profit of $210 from selling the put option and move on to the next Constant Cash Flow trade.
- Worst case, you still get to keep the $210 you earned, and you buy GOOG shares at a signficant discount. But as you can see, there are very low odds – only a 14% – of that happening.
The advanced algorithms and programming behind Constant Cash Flow searches the markets for only the highest probability option trades – those we expect will expire out of the money as planned – ensuring that you keep 100% of the premium earned. Then you simply move on to the next trade, as another trade email hits your inbox with each passing day. In the GOOG example above, the maximum profit of $210, the income you earn immediately upon selling the put option, comes from just one trade. While that may not sound like much money at first glance, remember that you’re in this trade for just 22 days. And if you can earn an extra 210 bucks every 22 days, that adds up to over $3,400 over a full year’s worth of Constant Cash Flow trades! Think of Constant Cash Flow as an income-earning, trade-of-the-day program. You don’t have to act on every put trade that hits your inbox, but they’re available every day for your consideration. And if your email inbox gets too busy to scan through, members can easily access every Constant Cash Flow trade on TradeSmith Finance, as I’ll show you below: 
First, be sure you’re logged in to TradeSmith Finance. Next, click Pubs on the main menu bar at the top, then select Options in the sub menu. Now scroll down to Constant Cash Flow and click on the blue highlighted link. That will bring you to the Constant Cash Flow portfolio page, where you can view all open and closed trades recommended by the service – at any time. So, if you ever miss an email, you can quickly catch up on all the trading action right here. Mike Burnick’s Bottom Line: So far, Constant Cash Flow has maintained an impressive track record, boasting a win rate of 98.4% since the service launched. That’s 557 winners out of 566 total trades! While speculating with options can often feel like the odds are stacked against you, using options to hedge against risk to your portfolio is worth consideration, even if the risks of trading options at all remain the same. But if you’re looking for a reliable, high-probability strategy to earn income from options – and have that income deposited straight into your brokerage account every day, then consider taking Constant Cash Flow for a test drive. Give us a call to learn how: dial 888-623-0858, and get TradeSmith’s systems working for your portfolio. Good investing,  Mike Burnick
Senior Analyst, TradeSmith | 
No comments:
Post a Comment