Up, Down, or Sideways
There is a certain type of investment that will thrive whether the market is going up, down, or sideways. In today’s essay, Andrew Gordon, Research Director of our sister publication, Investor’s Daily Edge, tells you what it is. And he introduces you to the expert he goes to for advice when he’s going to make a move in this sector.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
Robert G. Allen
May was bad. June wasn’t any better. A laundry list of problems has emerged from Europe to Afghanistan, and most of them are getting worse. So why isn’t IDE’s own options expert, Ted Peroulakis, worried?
“What’s happening in the world isn’t pretty,” says Ted. “In fact, I can’t remember when so many crises were happening at the same time. Investors have every right to be concerned about sovereign debt in Europe, the Gulf oil spill, China’s possible bubbles, growing tension in the Middle East and North Korea, and the likelihood of tougher financial regulations.
“But even if you conclude that the global economy is falling apart, I can show you how to make money, and I’m talking about sizable gains.”
Ted’s Winning Streak Is No Accident
Through his Options Power Trader service, Ted recommends call options, betting that an asset will go up. He also recommends put options, betting that an asset will go down.
And he has just come off a 12-win streak.
Ted took some big winners in May, when hedge funds had their worst month since October 2008. One company that tracks the performance of hedge funds said they lost 2.99% last month. Another company said 2.3%. Even John Paulson’s hedge fund fared poorly. Paulson, if you recall, was the one who made billions from betting early on that there would be a subprime crisis. His Recovery Fund lost 8.7% in May.
Ted doesn’t automatically follow the herd. Nor does he automatically go in the opposite direction of where he sees Wall Street going. Instead, he sticks to three simple rules he’s made for himself:
1. Stay humble. Don’t think you’re smarter than the market.
2. Let the market show you how to invest.
3. Select the best options based on leverage, price, and sustainability of the trend or price movement.
Why Weren’t You In On This Trade?
Ted traveled up to Baltimore a few weeks ago. It gave us a chance to sit down and discuss the way he invests during times of economic turmoil. His recent trades in the euro nicely illustrate his approach.
Ted began paying particular attention to the euro about three months ago, when rumors began to leak out of Greece that their debt problem ran much deeper than previously thought. The euro immediately began showing weakness. He held off. He knew the EU had to respond to the situation. And until it did, the euro was in a position to fake out currency and options traders.
But when the euro kept falling (over 7% — a huge move for a currency) after the EU announced its nearly $1 trillion program to backstop the currency, Ted moved in and bet on the established trend of a weakening euro. Following his instructions, his Options Power Trader subscribers got in — and then out of — the trade, doubling their money.
Ted kept reviewing the euro’s price movements. When its down days far outweighed its up days, he went right back into the market with another put option. In a few days’ time, this recommendation made his subscribers another 100%.
Ted paused again, continuing to study the euro’s price movements. The trend was still pushing the euro’s value down, but it was weakening. Ted bet the euro would go down for a third time. But it didn’t work out. The euro rallied briefly. Ted cut his losses at 50%.
Let’s review Ted’s three trades on the euro:
- The first one made 100%.
- The second one made 100%.
- The third one lost 50%.
If you had put $1,000 on each one of those trades, you would have made $1,500 on a $3,000 stake. In other words, while the high-and-mighty hedge funds were losing their clients’ money… while stock markets throughout the world were experiencing their worst May in years… Ted was making his readers 50% on a series of euro trades.
What They’re Saying Now
The results of a stunning poll recently released by Bloomberg revealed that 85% of professional investors (Bloomberg subscribers) believe Europe’s debt problems will hurt the U.S. economy — and three-quarters of them believe a default is likely.
Paul Schulte, head of multi-asset strategy in Asia at Nomura Holding, says that “debt restructuring in Europe looks inevitable.”
And according to The World Bank, if Europe can’t manage its debt crisis, the impact could threaten economies from Central Asia to Latin America.
Are they right? Are they wrong?
What Ted Thinks
Ted thinks the euro still has room to go lower… much lower, as a matter of fact. And with the powerful leverage that options bring to the table, that means another opportunity to make outsized gains.
Ted’s prediction: The euro will fall down to parity with the U.S. dollar by year end, a further drop of around 20%.
“Investors are clearly nervous,” he says. “The European banking system still has a lot of problems to work out. Many euro-zone countries have double-digit fiscal deficits and will only be able to sustain low levels of growth. In addition to a further weakening of the euro, you’ll see a flight from risk, U.S. Treasuries being bought, and more wild swings in the market.”
All of these factors lend themselves to extremely profitable option trades.
What the Power of Options Can Do for You
Ted calls put options “the cheapest portfolio insurance in the world.” If the market goes down and you make a 100% gain on a put option, consider it insurance money against the losses you’re taking in other parts of your portfolio.
And if the market goes up? You take a loss on the “cheap insurance” you took out. But your portfolio goes up, so you still come out ahead.
And what can options do for you when the bears and bulls engage in a tug of war, like they’ve been doing recently, pushing the market way up one day and way down the next?
“A really volatile market can deliver my readers lightning-fast triple-digit gains,” says Ted. “I occasionally place a put on the S&P 500, Dow, or Nasdaq, but I really like to do options on the stocks that tend to move.”
“I’m not against owning stock,” he says. “But owning stock while keeping away from options is like buying houses for 100% down instead of 20% down. Even if you can afford to do so, why not leverage at least some of your money as a way to make bigger profits more quickly while using less of your cash?”
[Ed. Note: Ted Peroulakis runs IDE’s Options Power Trader. As a subscriber to this service, all you have to do is make a 3-minute call to your broker and repeat Ted’s instructions. That’s it. Ted does all the work.]