How would you like to win on at least 80% of your trades? If you trade stocks and the market is in a bull mode, winning on 80% of your trades may not sound so hard. But what about bear markets like 1994? What about standstill markets like 2005? Not only is it hard to achieve consistently profitable results, it takes a lot of time.
What if I told you there is a way to easily select trades that win at least 80% of the time, you could make your selection in less than five minutes, and it works in bull markets, bear markets, even standstill markets?
The reason it works so consistently is that we are going to legally change the rules of trading. Instead of making money the way most people make it, we're going to radically change the way you profit from trading. The way most people make money is to buy a stock at a low price, wait for something to happen, and then hopefully sell it at a higher price. A few people make money from short selling. That is, the way they make money is to sell the stock short at a high price, wait for something to happen, and then hopefully buy it back at a lower price. We're going to make an extreme departure from that method of trading by legally changing the rules of trading. And once we've changed the rules, you have at your fingertips a fast and statistically proven method to achieve high accuracy and steadily build profits.
The First Rule of Trading
Buy Low, Sell High. We've all heard it. But how many of us have ever taken the time to consider the implications of the most essential rule of trading?
The purpose of this special report is to discuss this rule and it's implications. We'll look at the jargon Wall Street uses (and poke some holes in their attempt to make themselves appear smarter than you). Then, we'll look to see if there is anything that can be done to change that rule!
To begin, let's look at that rule again, "Buy Low, Sell High." It seems simple enough, but there sure aren't very many people who can do this consistently enough to beat the stock market year-after-year. As many of you know, only a small sliver of mutual fund managers actually beat the broad-based indexes for more than a few months. A study done in 2002 showed that only five out of five thousand mutual fund managers beat the S&P 500 for five consecutive years. That means that 99.9% of all mutual fund managers failed to beat the most common benchmark index for five consecutive years! But what is it that these underperforming mutual fund managers, some of whom have research budgets in the tens of millions of dollars, are doing with your money? The answer is quite simple, they're supposed to buy stocks at a low price, and sell them later at a higher price. Buy Low, Sell High. That's it! That's all they're supposed to do. The problem is, 99.9% of the professional money managers out there can't accomplish this seemingly simple task. Except in a handful of rare instances, the trading and investing decisions of professional money managers add no value. In fact, because they have an overwhelming tendency to underperform the benchmark index, the buy and sell decisions of money managers actually detract value from your nest egg!
Now think about this. Most of these self-described professionals use all sorts of jargon to describe their methodology. Most use fundamental information to make their investment decisions. They look at earnings. They look at sales. They look at economic trends. They look at technological advances. They look at debt levels, labor issues, cash flow, dividends, research and development, competition, and nearly everything else you can think of. You've probably heard the stuffed-suit get on TV and declare to the world, "We avoid market-timing because no one is able to accurately time the market. Instead, we rely on superior stock selection. Our analysts dissect balance sheets and earnings reports, and we select only the very best companies for our investment portfolio." In other words, the guy is a stock-timer! That's right, he's not a market-timer. He's a stock-timer. After all, what is "superior stock selection"? It's nothing more than trying to correctly time the purchase and sale of an individual stock! And unfortunately for the guy trying to make himself sound smart, 99.9% of stock mutual fund managers can't do it! They decry market-timing, as if it's imprudent. But they advocate stock-timing, only they don't call it that because it doesn't sound fancy enough.
The bottom line is that whether you're timing the market, or timing a stock (even though the professionals call it something else), the rule still applies: Buy Low, Sell High.
The Second Rule of the Market
There's another rule that is very well established, and that is the efficient market. That is, the current price is correct based on all information available. Given all the information out there, the price of the asset is where it is based on the current judgment of buyers and sellers. The only way for a stock to move from its current price is for new information to come along, or for investors' judgment to change.
For instance, let's say a stock is at 50. The reason the stock price is 50 and not at 60 is because the collective judgment of buyers and sellers has determined that 50 is the right price, given the information that is currently available to market participants. The only way for the stock to move away from 50 is for one of two things to happen. Either the collective judgment of investors has to change, or some news or event has to come along that changes the fundamental landscape. Sales have to get better, or get worse. Earnings have to get better, or get worse. Analysts' opinions have to get better, or get worse. If sales come in as expected, or if analysts' opinions stay the same, the stock won't move.
You'll see this all the time around earnings season. A stock will tread water for a while, then it will start to rally prior to earnings. The reason it is rallying is because the collective judgment of investors is changing; people are expecting the company to report earnings that will be better than previously expected. The stock continues to rise, and then earnings come out. They weren't any better than the original expectations, and the stock falls. Not only that, the company says sales will be down in the months ahead due to a product transition. The stock falls further.
This is a classic example of the stock moving based on something happening. Whether it's a change in fundamentals, or a change in perception, something has to happen for the stock to move.
The problem for most investors is that few people can predict that "something". I've shown you already that the mutual fund management community can't forecast a stocks reaction to earnings. If they could, more than 0.1% of them would beat the market. Instead, 99.9% of them underperform the market.
All of this is meant to illustrate the problem with the rule: Buy Low, Sell High. Buying low and selling high is completely dependent upon correctly forecasting what will happen. Something has to happen in order for you to make money when trading this way. You buy the stock, and it has to go up. If you are a short seller, you sell the stock short, and then it has to go down. Again, something has to happen.
Legally Change the Rules � Making Money a Different Way
I've shown you the typical way that people make money in the market. They buy an asset and then wait for something to happen. Hopefully for them, they forecast things correctly and the stock will go up. But there is another way to make money.
I want you to think of the way an insurance company makes money. An insurance company makes money if something does not happen. For instance, a health insurance company makes money if you do not get sick. The property and casualty insurance company makes money as long as your house does not catch fire. The car insurance company makes money as long as you do not have a wreck. The insurance company that sells term life insurance company makes money as long as you do not die early in the term.
Actually, those examples overly simplify things a bit. For instance, the health insurance company can still make money, as long as your expenses don't exceed the deductible amount plus the amount you paid in premiums. And term life insurance is based substantially on the amount of money the insurance company can earn by investing the premiums you pay before it eventually pays out the cash in a death claim.
That said, the underlying basis for this method of making money is founded upon the principle of something not happening, which is the exact opposite method typically used to make money in the financial markets.
The question then becomes, is there anything that you can use to make money in the financial markets that uses the same method as an insurance company?
The answer is, a resounding yes! The tool that you can use is options. In particular, certain combinations of options called spreads. With options, you can construct a simple option spread that is designed to make money as long as the asset does not do something.
Let's look at the following example to illustrate what I mean. As nearly everyone knows, the S&P 500 index is an index that represents a basket of stocks. The index goes up and it goes down. Hardly anyone, even the professionals, is able to predict with certainty the direction of the index. If they were, they could easily beat the index by simply allocating a bit more money to cash when they thought the market was headed lower. That move alone would allow a money manager to beat the benchmark index. As the statistics show, they are unable to do that simple task. Even worse, virtually no one is able to predict how far the index will travel over a finite period of time.
But here's a little-reported statistic about the S&P 500 regarding distance and time. Looking back over the past 50+ years, the stock market has moved more than 5% from one month to the next month only 20% of the time. That means it has moved less than 5% in a month 80% of the time.
| Look at the table to the left. In it, you see the closing price of the S&P 500 on every expiration Friday of every month. Also shown is the month-to-month change in the S&P |
Looking at this same type of data, but over a much longer period of time, we find that the percentage movement of the market is pretty consistent. As many of you may know, the New York Stock Exchange used to be open on Saturdays. They ended Saturday trading in 1952. I looked back to the time when they stopped Saturday trading and compiled the monthly change data for the S&P 500 for each and every month. Here are the bottom line statistics:
Number of month-to-month changes: 643
Number of month-to-month changes less than 5%: 522
That means 81.18% of the time, the stock market had a month-to-month move less than 5%, 18.82% of the time, the stock market had a month-to-month move greater than 5%.
Now, this is important � imagine that there was an investment strategy where you could make money as long as the stock market does not move more than 5% in a month! If there was, you'd have a strategy that would have won 81.18% of the time during the past 54 years. Well the good news is; there is such a strategy!! Using an option combination known as a spread, you can construct a strategy that makes money as long as the stock market does not move more than 5% from one month to the next.
This is a graph of the S&P 500 as of December options expiration. The S&P 500 was at 1267.32. Using options, you can construct an investment that makes money as long as the S&P 500 does not rise or fall more than 5% in a month. Those 5% boundaries are shown on the chart. The upper boundary is 1330.69. The lower boundary is 1203.95. Above the upper boundary, losses occur. Below the lower boundary, losses occur. In between the two boundaries, profits occur. And as we know from our statistical analysis, the S&P 500 should stay between the two boundaries more than 80% of the time.
As you can see, the S&P 500 didn't even come close to leaving the
The key to all of this is the use of options. Options offer the unique capability of creating an investment strategy that is tailored to your specific objectives. That's because they have a unique feature called an asymmetrical bias. The bottom line is that they give you flexibility. If your objective is to try to profit from something not happening, you can do that with options. When done right, you should win on at least 80% . . . 90% ...even 95% of the trades you make. I can teach you how in just hours. Using just one basic technique, I've identified historical results of 301 wins and just 5 small losses . . . a stunning 98.37% wins! One of my students funded the business of his dreams totally with his option profits.
Because we use options to achieve this incredibly high win rate, it is mandatory for you to understand options. The bad news is that options are not the easiest trading vehicle to understand. They are also widely misunderstood. The unfortunate truth is that people trade options, even when they don't understand how they really work. That leads to people losing money and blaming options. The fact is, options are not the reason people lose money. It's poor investment decisions based on a lack of knowledge. To resolve this problem, some people advocate that you not use options. I say that's mistaken.
As I've shown you in this report, options can be extraordinarily profitable. But you have to understand them. There are numerous books on options that have been already published. Many of them are very well written. I've read several of them myself. The problem is that they're written for people who already have a basic understanding of options. It's as if the authors were trying to impress their peers, as opposed to giving you information you could understand and use.
To alleviate this problem, I wrote a book called Options for Beginners. The latest edition of Options for Beginners takes you step-by-step through all the basics. You need not be an expert, as everything is explained with the assumption you know nothing about options. And that's the key. It's knowledge you can use. I didn't write the book to impress my friends. Heck, I didn't even write it for the money. [I donate every penny of profit to the American Heart Association. For more information on our charitable giving, click here.]
I wrote Options for Beginners because I thought it was time for ordinary men and women, people just like you, to have access to the same trading tools that my employees and I use. Those of us who are using this information have found it to be the key to unraveling the secret to consistently winning in all sorts of market conditions.
The cost of the book is just $14.95. And remember, all the profits go to charity. Heck, you can learn about options and help fund research that is searching for a cure for heart disease.
Whether you're a seasoned options trader or a complete beginner… this valuable book will provide the financial boost you've always dreamed of. If is definitely possible to earn a substantial income while trading with remarkable accuracy. It's being done right now! By changing the rules, you can target consistent profits that pile up week after week. And by using the right option strategy, you can keep your risk firmly in control. I strongly urge you to get your copy of my book right now.
No comments:
Post a Comment