BYOT: Build Your Own Trade

Our subscribers are smart... Uncertainty. Unprecedented. Unknown... 'The smartest way to get back in the market'... BYOT: Build Your Own Trade... A crossroads for U.S. stocks... Will 'this' ever end?... Look out below...

We know our subscribers are smart, but it's always nice to be reminded of it...

Regular readers – and specifically, those interested in trading options – may recall Jeff Havenstein's April 2 Digest, "Another Great Way to Buy Porter's 'Forever Stocks.'"

Jeff published his essay a week after our founder Porter Stansberry started urging folks to buy high-quality, blue-chip stocks at what he called once-in-a-generation cheap prices following the coronavirus-induced panic.

At the time, the major U.S. stock indexes had just started an absurdly fast rally from their lows in late March...

The benchmark S&P 500 Index and Dow Jones Industrial Average were up 17% in just a few days... and as we now know, the indexes continued higher for the next few weeks.

But there was – and still is, as we've seen this week – tremendous fear in the market.

Uncertainty. Unprecedented. Unknown. These are the words of spring 2020...

Investors were nervous following the market's sell-off in March, and the smart ones were probably sitting on a pile of cash back by early April.

And as Jeff – an analyst for Dr. David "Doc" Eifrig's franchise – discussed, those smart investors had a few choices to make...

First, Jeff laid out some context for our readers. He wasn't convinced the rally would last forever, and he shared the reasons why he felt we hadn't reached "peak bad" yet...

But he explained that even if he was wrong and the markets continued to head higher, his trading idea could work for both bulls and bears...

And then, Jeff detailed the three choices for investors looking to put their cash to use...

1. You could buy your favorite stocks today, with the knowledge that they will likely go down in the short term.
2. You could try to time the market bottom. You'd buy stocks the day they are cheapest and hold on for the ride up.
3. Or you could agree to potentially buy your favorite stocks at a lower price than they are trading for now... and receive a big cash payment because of it.

Unless you're some sort of market wizard, I think the third option sounds the best.

This third approach was 'the smartest way to get back into the market today,' Jeff said...

To us, Jeff is kind of a market wizard himself... for simply knowing the best approach to take.

He's also an options expert... and a key contributor to Doc's options-focused Advanced Options and Retirement Trader services. (And for what it's worth, he's also a 6-foot-8-inch former college basketball player who can launch a golf ball.)

In that April 2 Digest, Jeff suggested a trading idea on an overlooked "boring company" – trash-removal giant Waste Management (WM). He used an options trade on the company as an example of a fantastic way to execute trade idea "No. 3."

Jeff talked about a specific trade – selling put options on WM – that could give readers downside protection of about 14% and could return a couple hundred dollars of profit as well.

Now, he didn't even mention the term "put option" once. And he didn't specifically name which put option to sell. (For the uninitiated, there are various time frames and prices associated with buying or selling options... Doc and his research team offer entire courses on topics like these.)

But even though Jeff didn't give out all the details of this "free" trade, he apparently gave away enough information – the type that paid subscribers to Doc's services usually only get – for some Digest readers to make the trade on their own.

We're onto you... We know that many Digest readers figured out that Jeff was talking about selling the WM May $80 puts.

How? You can see the spike in volume the day after we published the essay...

Today, the "May expiration" for this $80 put option is a day away. Those folks who took up this trade (though you have remained anonymous, smarties) are probably wondering how it played out...

Since you figured out the trade, Jeff thought we might as well provide an update in today's Digest. So he sent us this e-mail this morning to share with everyone...

Digest readers who made this trade will be able to close out their positions for maximum profits tomorrow. And the best part, their capital was really never at any serious risk.

As Doc likes to say, folks who made this trade have been sleeping like a baby... We had incredible downside protection in case things turned for the worse (which it didn't) and we still made a few hundred bucks as WM was able to move higher.

For most Digest subscribers who made this trade, they were able to collect about $240 per contract sold (based on options-trading data we've looked at).

So if they sold two contracts, they were paid $480. If they sold three contracts, they were paid $720, and so on...

With Waste Management currently trading around $95, your $80 puts are going to expire worthless tomorrow after the market closes. There's nothing you need to do... Your broker will handle everything for you.

You can keep the $240 you collected at the beginning of the trade and you don't have any further obligation. Like I said in my Digest, this trade was a way to pocket a few hundred bucks with virtually no risk at all.

All you have to do next is decide how to spend your profits.

It works out to a 3.1% gain on capital at risk in about six weeks, or 27% annualized. That might not sound like a lot, but don't forget... The trade provided downside protection that you couldn't find elsewhere in the markets at the time.

Said another way, if WM stock went down, no worries... You were OK owning it anyway.

We'd say that's a job well done... by Jeff and all the eagle-eyed Digest readers who are always on the lookout for a "free" trade, and know how to do it. Congrats.

Call it "BYOT: Build Your Own Trade." This is ultimately what we love for our subscribers to feel confident doing.

Jeff also told us today that he doesn't see the volatility in the market going away anytime soon...

Folks have been optimistic about the economy reopening... and stocks have rallied as a result. But he believes they're being too optimistic. As he also told us in an e-mail today...

There's a lot that can go wrong. Roughly half of all U.S. full-time workers are making more from unemployment benefits than they made at their jobs before the economic shutdown.

It may take a while for workers to come back to their old jobs. And we'll likely see many well-known companies file for bankruptcy in the weeks to come.

While it's almost impossible to predict what the next few months will look like. Jeff still tends to be cautious at this point.

If you can count on anything, it's that there will continue to be fear in the market. And option sellers thrive when folks are scared...

Option prices soar when fear rises. And sellers, like the ones who made the trade Jeff suggested, can collect big premium payments. The only risk they have is to buy shares of a company they'd be happy to own anyway.

So if you haven't considered selling options before, now is the time. Click here to learn more about a subscription to Doc's Retirement Trader. And let him, Jeff, and the rest of the research team help you learn you how to do it. You'll get all of the details you need for each and every trade.

As for more about the direction of U.S. stocks...

As Jeff mentioned, stocks have rallied since the start of last month... But over the past few days, we've seen the "bad news" jitters return.

Federal Reserve Chairman Jerome Powell warned yesterday that more relief is needed for everyday Americans. Otherwise, "permanent damage" to the economy is likely, particularly with small businesses.

In the meantime, the promised stimulus payments still haven't reached millions of living Americans... and many have been sent to dead ones. The logistical nightmares are sure to cause some kind of negative consequence. And as our international editor Kim Iskyan wrote yesterday, U.S.-China economic relations are back in the headlines.

Plus, many doctors in government leadership positions are warning of a "second wave" of COVID-19 outbreaks should the country be reopened without people following the recommended guidelines to slow the spread of the virus.

Count me (Corey McLaughlin) among those concerned about all of these developments... I heard from a doctor I trust at a major hospital in Baltimore today who believes another "surge" will happen in two or three weeks once people go back outside en masse again.

If that happens, we could be back close to where we started with all the lockdowns... and more uncertainty about the next year... questioning if "this" will ever end.

In any case, it feels like stocks are ramping up for another big-time round of 'look out below'...

Volatility, while still nowhere near the historic levels we experienced in March, has risen again this week. All of the major indexes – even the tech-heavy Nasdaq Composite, which has outperformed this year – have slid roughly 3% over the past four days.

In the very short term, according to our editors who follow the "technical" indicators the closest, we're at a crossroads... and at a potential starting point for a "next leg down" in stocks.

In yesterday's DailyWealth Trader issue, editors Ben Morris and Drew McConnell explained...

Yesterday, for the second time in two weeks, stocks "failed" at an important level...

We don't yet know if that marks the end of the massive rally...

But we do know that 2,950 has proven to be strong resistance for the benchmark S&P 500 Index... And that knowledge alone can help us in our trading.

As regular DailyWealth Trader (DWT) readers know, "resistance" is a level at which traders tend to sell an asset. You'll often see resistance at a recent high or low. These levels – where the price action has turned in the past – tend to be turning points in the future, too.

Despite the rally in U.S. stocks, the S&P 500 is still in a long-term downtrend...

Ben and Drew showed that clearly in a pair of charts. First, they showed that the benchmark index is trading below its 200-day moving average...

And then, Ben and Drew shared the visual evidence of the S&P 500's aforementioned inability to break through the 2,950 level, a theme that stretches back into 2018...

Ben and Drew then gave subscribers a clear path forward for potential trades, no matter which direction the market goes.

Should the S&P 500 continue to turn lower, the next "support" level – the opposite of resistance – is around 2,740, near the index's April 21 low.

Last week, you may recall we wrote about the relative strength of the Nasdaq in 2020...

Well, even investors' favorite big index of the year is showing signs of weakness now.

Ten Stock Trader editor Greg Diamond, a Chartered Market Technician, wrote this morning that the Nasdaq has been making a series of "lower highs." As a result, Greg says any "new high in the Nasdaq is vulnerable to a sharp decline (one I've been waiting for)."

He also made the same observation as Ben and Drew... that the S&P 500 is still in a broader downtrend overall. Greg said a "major pullback looks likely"...

Remember the S&P 500 still has NOT traded above the 3,130 level to dictate a runaway bull market is underway.

As a reminder, all of Greg's intraday technical analysis, including charts and much more context, is available for free on StansberryResearch.com (on the right side of the page, after scrolling down just a little bit).

Finally, these sorts of times are exactly what our friend Enrique Abeyta hangs his hat on...

In short, as we shared in Tuesday's Digest – Enrique, a dear friend and longtime colleague of Empire Financial Research founder Whitney Tilson – considers himself a "make money" investor.

In other words, he doesn't tie himself to any one particular approach... like value, technical analysis, momentum, or "only anything."

That's a big reason why he has been so successful managing other people's money through multiple crises... like the pop of the tech bubble... the 9/11 disaster and its aftermath... and the financial crisis. He launched hedge funds right before each of them, by coincidence, and actually made a lot money for clients during them.

One of these funds grew by 130,000% in four years.

This year, Enrique just so happened to launch his new independent hedge-fund-style trading service as the coronavirus crisis was beginning... But because he has "been here before," he's undeterred by the risks... and sees massive trading opportunities at the same time.

To learn more about Enrique's fascinating story – he was a poor kid in Arizona who turned himself into a multimillionaire – and his new trading service, click here. And stay tuned for more from Enrique in this weekend's Masters Series.

The Go-To Hedge

In this video with our colleague Jessica Stone, DailyWealth Trader editor Ben Morris describes a "go to" option for traders looking to hedge their portfolios.

To watch this video, click here. And don't forget to subscribe to Stansberry Research's YouTube page for free to get all our latest video content. You can do that right here.

New 52-week highs (as of 5/13/20): General Mills (GIS), JD.com (JD), KraneShares MSCI All China Health Care Fund (KURE), Lonza (LZAGY), NetEase (NTES), and Victoria Gold (VGCX.TO/VITFF).

In today's mailbag, thoughts from a new subscriber... differing opinions about a subscriber e-mail in Tuesday's Digest... and feedback on yesterday's Digest from Kim Iskyan about U.S.-China trade relations. Do you have a question or comment? Send it to feedback@stansberryresearch.com.

"I am a new subscriber to Stansberry and have been reading for roughly two weeks now and I must say that I am enjoying it thoroughly... I have read other business articles and journals in the past which tended to be dry, full of jargon and technical information that it made it hard to read.

"By contrast, I enjoy the articles at Stansberry because they take more of a story approach to presenting information. All positions that Stansberry takes on companies are supported with a broad overview, the backstory on the company, and even the company's key people. I find this format very simple, engaging and easy to read.

"Keep up the good work." – Paid-up subscriber Henry B.

Corey McLaughlin comment: Thanks, Henry. What you've described is precisely what we aim to deliver to all subscribers every day. Glad you are enjoying your subscriptions so far. Welcome!

"I want to thank you for printing the comments from paid-up subscriber Steven I. in Tuesday's Digest... His comments on the Covid-19 fear and the analysis of the reaction to it by various governments was spot-on and is one of the best articles I've seen on the subject perhaps only second to Porter's 'The Big Lie' Friday Digest. I was impressed with the facts he presented and really enjoyed his presentation style and his writing.

"Do you think you could get someone in Stansberry to offer him a job? I'd love to read something from him on a weekly basis!" – Stansberry Alliance member Walter C.

"Oh my! I can't believe I paid a lot of money to become an Alliance member... to now get a platform for anti-vaxxers like 'Steven' whom you printed yesterday. Why don't you start printing stuff from the people who believe Covid is from 5G towers?

"And if you follow medical journals, it appears this 'no big deal' infection is causing quite a few problems even in 'low risk' younger people. Ask the family of actor Nick Cordero who is still on life support and had a leg amputated from blood clot. This virus is not benign. Look at the kids getting vascular complications like Kawasaki disease. I hope your family is safe.

"Marie Antoinette said, 'Let them eat cake.' Stansberry's slogan is 'Let them get herd immunity.' I hope you end up better off than the late French queen. Please ditch the tinfoil hat crowd and just stick to actionable investment advice." – Stansberry Alliance member Doug V.

"Your article is written like there is no reason to be concerned about trading with China, that trade boosts everything. B***s***.

"I worked my whole life in U.S. industry. China has 200,000 people doing nothing but commercial industry stealing through the Internet. My company was infiltrated for four years back in the early 2000s before we were ever made aware of it by the FBI. Tried to clean it up. But today they are so sophisticated that they are probably back into every Fortune 500 company's systems...

"My company had a unique process technology that no one else had. It was not patented so as not to be known in the public domain. But we had legal documents of protection with the subcontractor making this unique part for our production equipment. No big deal for China. They just paid a big bribe to get the information. When we tried legal action, they simply ignored us. We were only fortunate that Kissinger got involved. But then we only ended up with a paltry license fee.

"I could continue on for hours... I would rather be poor and free than be subservient to China. Which is exactly what we are now. We should have been dealing with that 'terrible' Russia. At least they are only interested in military espionage. China is stealing everything both commercial and military. And have taken over heavy industry in the world so that no one else will have the means to resist them.

"So you continue to 'get rich' doing China's bidding. That is not for me! I would rather be poor and free! I am sad thinking about the future of our children in a China world, a world where they track every movement of their own people. A person jaywalking in China will have a penalty deducted from his bank account before reaching the other side of the street. What a forward technology thinking country they are." – Stansberry Alliance member Mark G.

"Kim, Well said about our current financial situation during the pandemic. The Chinese citizens can sustain a longer trade war with US cuz the Chinese are exceptional savers. On the other hand, Americans can hardly come up with $400 emergency fund. And look at the current unemployment rate of over 14% (the real unemployment could have been over 25%) and counting!

"The U.S. can't drop the helicopter fiat money forever without the harm of debasing the U.S. currency and, as a result China will start to dump the treasury bills, that will exacerbate the currency problem." – Paid-up subscriber Vince C.

That does it for today.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 14, 2020