Three Trades to Strike on While Others Panic

Palm Beach Daily

Three Trades to Strike on While Others Panic

By William Mikula, analyst, Palm Beach Daily

On Wednesday, we witnessed the bane of mainstream financial analysts: the dreaded yield curve inversion.

The Dow dropped over 800 points on the news—its worst day of the year. And for good reason…

When the yield curve inverts, long-term Treasury yields fall below short-term yields. And yield curve inversions have preceded every recession since the 1950s. So on the surface, it’s an ominous sign.

It’s also spooking investors. Although the Dow settled down again Thursday, the Volatility Index (VIX) spiked above 23. This surge capped off a 69% increase in the market’s so-called fear gauge over the past 30 days.

So investors are scared. But an inverted yield curve doesn’t mean the market is set to crash right away.

It’s a leading indicator. Generally, it precedes a recession by 12–18 months.

And while I can’t tell you the exact timing or cause of the next crash, I’m here to share how you can profit from it.

You see, at PBRG, we look at the market differently from the average investor.

We advocate smart asset allocation and multiple investing strategies to grow—and protect—our wealth, regardless of market conditions. That’s how hedge funds and Wall Street’s elite make their billions each year.

So while other investors are running scared, we’re sharpening our knives and getting ready to pounce. And today, I’ll share three trades we’re ready to strike on at any moment.

But first, let’s look at the strategy we’ll use from our toolkit…

How to Earn Instant Cash Payouts

At PBRG, we call our method Instant Cash Payouts. We offer shareholders a form of “insurance” on their shares with “low-ball offers.”

In technical terms, it’s selling put options.

Using a unique aspect of the options market, we agree to buy investors’ shares for a certain price and a certain length of time in exchange for an upfront cash payout.

The cash is ours to keep—no matter what happens. And we only have to buy shares if they drop to our agreed-upon price.

The bottom line: We get paid to buy companies we love—at a discount. That’s what makes the strategy so powerful.

Now, we only make low-ball offers on the best companies in the market. These are companies that dominate vital industries. They gush free cash flow and profits and look after shareholders.

More importantly, they’ll make it through a market crash with relatively minor damage. Sure, their share prices might fall a bit, but it won’t be a mortal blow. They’ll eventually recover.

Here’s the thing…

Our Instant Cash Payouts increase when investors are fearful. Think about it from your own perspective: You’re more likely to pay up for insurance if you feel an event is almost certain to happen.

It’s no different in the stock market. But what’s great is, this strategy works in any type of market…

Wall Street’s “Fear Gauge”

Now, the VIX measures the S&P 500’s expected volatility over the next 30 days. And it’s the first thing I look at each morning. You see, it influences how much cash we earn for our low-ball offers.

A low VIX reading (below 20) means investors are calm and complacent. They aren’t willing to pay as much for the “insurance” we provide.

And a higher VIX reading (20 or above) implies that investors are nervous and fearful. This means they’re willing to pay up for our “insurance.”

In 2018, the average VIX reading was 15.4—but reached as high as 37.32.

This year, the market has spent most of its time below the 20 level. But throw in the Hong Kong democratic protests, the Argentine stock exchange crash, and rising trade war fears… and you have a recipe for more fear and volatility.

And the chart below shows just how much higher fear can spike…

As you can see above, “fear” spiked to a level of as high as 80 during the market meltdown of the 2008 financial crisis.

That’s nearly triple the high point of 27 we’ve seen this year. So we’ll be able to easily double our income payouts if we get a similar market panic.

In this scenario, we’d enjoy annualized gains close to 50% or more.

Again, the ultimate catalyst is irrelevant. The time to prepare for higher volatility and a possible correction—is now.

And with the VIX rising above 20 again, it’s time to strike…

Volatility Watch List

To help you profit from the current volatility, I’ve listed three trades I’m watching closely. Once the levels I’ve marked are hit, we plan to strike…

Stock

Ticker

Wait for price to drop to…

Make a low-ball offer to buy shares at…

*This will give you a “cushion” of…

And target an annualized return of…

Stop making low-ball offers when the price hits…

American Express

AXP

$115

$105

8.7%

28%

$135

Johnson & Johnson

JNJ

$120

$110

8.3%

27%

$150

UPS

UPS

$105

$95

9.5%

26%

$120

If you don’t know how to make a low-ball offer (sell a put option), then simply buy shares when they drop to the level I’ve indicated in the third column.

Once the next crisis passes, you’ll be glad you did.

And remember, always do your homework before making any trade. And never bet more than you can afford to lose.

Invest wisely,

William Mikula
Analyst, Palm Beach Daily

P.S. If you’re a subscriber to our elite, hedge fund-level service—Teeka Tiwari’s Alpha Edge—keep an eye on your inbox in the coming weeks. We’re wrapping up months of research to release another batch of trades for quick, triple-digit upside. And subscribers can read our latest Alpha Edge issue right here.

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