How to Profit From the 'Melt Up' With Far Less Risk

The record-breaking rally continues... The global 'Melt Up' is here... 'Portfolio insurance' has never been cheaper... How to profit from the Melt Up with far less risk...

Another day, another round of new all-time highs...

All three major U.S. stock market indexes – the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index – closed at fresh all-time highs on Wednesday. But they weren't alone...

The small-cap Russell 2000 Index closed at a new record high, too.

And even tech stocks – which had been leading the market lower – are moving higher again. As you can see in the following chart, blue-chip tech stocks just broke above their dot-com bubble highs for the first time...

It's not just the U.S., either...

European and Asian markets are soaring, too. In fact, global stock markets are now on pace to do something that has never been done before. As the Wall Street Journal reported yesterday (emphasis added)...

Stock markets go up and down: It is a fact of life. Except in 2017.

Three major stock-market benchmarks in the U.S., Europe and Asia have avoided pullbacks this year, commonly defined as 5% declines from recent highs. Never in at least the past 30 years have all three indexes – the S&P 500, MSCI Europe and MSCI Asia-Pacific ex-Japan – gone a calendar year without falling at some point by at least 5%.

In good years and bad, markets tend to fluctuate wildly, with stock indexes often falling by double-digit percentages before bouncing back. That hasn't been the case this year, another reflection of the historically low volatility that has gripped the world. The CBOE Volatility Index, or VIX, finished Friday at its lowest since 1993.

In short, more and more evidence suggests the global "Melt Up" is here... just as our colleague Steve Sjuggerud has predicted. And if Steve is correct, the most explosive gains are still ahead.

Stay long... This bull market likely isn't over yet.

Of course, that doesn't mean we won't see a correction along the way...

In fact, history suggests we almost certainly will...

The S&P 500 has avoided a decline of at least 5% only five times in the past 60 years, according to financial-services firm LPL Financial.

Likewise, over the past 40 years, the S&P has experienced a peak-to-trough decline of 14% on average every single year. This year, the largest we've seen is 2.8%.

A correction would not be unexpected here.

But you probably aren't aware of the other benefit to this record-breaking rally...

Right now, you have a rare opportunity to profit from the Melt Up with much less risk... while also protecting your portfolio from the inevitable "Melt Down" that is sure to follow.

You see, one particular form of "portfolio insurance" is dirt-cheap today. As our colleague Ben Morris explained to his DailyWealth Trader subscribers this morning...

This wealth-protection strategy is buying long-dated puts. The idea is simple...

When you buy a put, you buy the right – but not the obligation – to sell a stock at a fixed price for a set period of time.

If you own the stock, this puts a price floor under your shares because you have the right to sell the stock at a fixed price. Some money managers use this form of insurance... But it's not the one I'm talking about today.

If you don't own the stock, buying a put serves as a bet that the stock will fall...

Ben shared an example using consumer-electronics giant Apple (AAPL) to illustrate how this works...

Let's say you believe that Apple will burn through its $257 billion in cash, competition will drive the company into the ground, and it will go bankrupt within the next year and a half.

You ignore the critics and buy the Apple January 2019 $100 puts for $2.20.

To the great surprise of everyone (but you), Apple goes bankrupt and shares drop to $0. The puts you bought for $2.20 per share are now worth $100 per share. A $220 bet turns into $10,000. A $660 bet turns into $30,000. It's a 4,445% return.

In a bear market, that one small bet goes a long way toward helping you preserve or increase your wealth.

Now, this was just a simple example. As Ben noted, Apple is probably the least likely company in to the world to go bankrupt today.

But buying puts on companies with less favorable outlooks can be an incredible way to "hedge" your portfolio. If even a few of them work out, you could make unbelievable returns.

And again, this strategy is particularly valuable now because put options have rarely been as inexpensive as they are today. And this is because the Volatility Index ("VIX") has rarely been so low. More from Ben...

We've studied the VIX before. Traders often call it the market's "fear gauge" because it rises when folks are worried about stock prices dropping, and it falls when they're not. The VIX works by measuring prices that people are willing to pay for options.

As we just covered, people buy put options when they're worried about a crash. Put prices rise with demand... and the VIX rises.

But right now, as you can see in the chart below, the VIX is near its lowest level ever. (It hit its third-lowest level in history, 9.51, on Friday.)

We used monthly data rather than daily data for this chart, so the line would be clearer. But the VIX dropped below 10 in early 2007, not long before the market topped out. And the VIX peaked at 80.86 in late 2008, just before the market bottomed.

In other words, people are often willing to pay the most for portfolio insurance when they least need it... And they're often not willing to pay low prices when they need it most.

As you can see in the chart above, put options are as cheap as they've been in decades... meaning you can dramatically reduce your risk while spending very little money.

We've heard from several folks who are worried about staying in stocks today... This strategy is the answer.

If you're looking to put this strategy to work for yourself, look no further than Stansberry's Big Trade.

This service is dedicated to finding the weakest, most heavily indebted companies that are most likely to fail in the next few years. Even if the market soars, these stocks are likely to struggle. And when the bull market finally ends, these stocks could crash and ultimately disappear... earning Big Trade subscribers five to 10 times their money or more as they do.

Porter has prepared a short presentation explaining this strategy in detail. Click here to learn more now.

New 52-week highs (as of 7/19/17): Amazon (AMZN), American Express (AXP), Boeing (BA), Bancroft Fund (BCV), Becton Dickinson (BDX), iShares MSCI BRIC Fund (BKF), Blackstone (BX), CBRE Group (CBG), Global X China Financials Fund (CHIX), WisdomTree Emerging Markets High Dividend Fund (DEM), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), Euronet Worldwide (EEFT), Emerging Markets Internet & Ecommerce Fund (EMQQ), Eaton Vance Enhanced Equity Income Fund (EOI), iShares MSCI Italy Capped Fund (EWI), iShares MSCI Singapore Capped Fund (EWS), iShares MSCI South Korea Capped Fund (EWY), Facebook (FB), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), iShares China Large-Cap Fund (FXI), Global X MSCI Greece Fund (GREK), iShares Core S&P Small-Cap Fund (IJR), PureFunds ISE Mobile Payments Fund (IPAY), iShares U.S. Aerospace and Defense Fund (ITA), JD.com (JD), KraneShares Bosera MSCI China A Fund (KBA), KraneShares CSI China Internet Fund (KWEB), Lockheed Martin (LMT), Lindsay (LNN), iShares MSCI China Index Fund (MCHI), Microsoft (MSFT), AllianzGI Equity & Convertible Income Fund (NIE), Paysafe (PAYS.L), ProShares Ultra Technology Fund (ROM), ALPS Medical Breakthroughs Fund (SBIO), ProShares Ultra S&P 500 Fund (SSO), Stanley Black & Decker (SWK), Guggenheim China Real Estate Fund (TAO), Tencent (TCEHY), TransCanada (TRP), TTM Technologies (TTMI), Verisign (VRSN), ProShares Ultra FTSE China 50 Fund (XPP), Direxion Daily FTSE China Bull 3X Fund (YINN), short position in Brinker International, and short position in IBM (IBM).

A busy day in the mailbag, as several subscribers respond to Doc Eifrig and Richard Maybury... more send feedback on P.J. O'Rourke's new magazine, American Consequences... and one Alliance member sends an unusual thank you. What's on your mind? Let us know at feedback@stansberryresearch.com.

"Thank you Richard and Doc for your responses to my email. You make some very valid points which I agree with. The unstated point I was making is that America may have reached a point when the country can no longer afford to be a military world dominator, just like the Roman Empire learned when they ran out of money and couldn't afford to pay their soldiers. The empire collapsed.

"In more recent history, the same thing happened to us in Britain. We learned (the hard way) that empires are very expensive endeavours, the maintenance of which requires the unwavering will of the people. Even then, unforeseen circumstances can often disrupt the continuity of the empire. The American people will have to decide the future of the 'American Empire.' The evolution of which will be fascinating to observe as it unfolds." – Paid-up subscriber Steve Previs

"Just a quick note concerning Richard Maybury's comment to subscriber Steve Previs. We all know (or should know) what happened to the Roman Empire. A worldwide military power spending huge sums of borrowed capital to 'rule the world,' but rotting from the inside out, finally incapable of defending itself from barbarians. Are we (the USA) not following the same path as Rome?" – Paid-up subscriber Glen Hampton

"The U.S. is the richest nation in the world with the best economy and currency a part of it. It must be protected! The cost of advancing the state of the art in weaponry, defense systems and fighting units is astronomical. We know that, but we must stay on that path in order to be safe. Can you imagine what would happen if Iran or NK outpaced us in technological warfare equipment and weaponry? Perish the thought. We have no peers and I like it!" – Paid-up subscriber Kenny G.

"In response to the British subscriber's comments about the massive amounts of money the US expends on the 'defense' racket, Richard Maybury concludes with this remark: 'Did Rome have a larger military budget than Persia, Carthage, or Egypt? Of course, and there was a reason for it.'

"It is stunningly ironic that he writes that because any serious reading of Roman history shows that the expansion of the Empire into what is now the Middle East is, if not the reason for the ultimate 'Fall of the Roman Empire,' it is surely one of the main factors in that slow motion collapse. The centuries of confrontation with Persia is the very definition of 'quagmire.' The fiscal costs emptied the treasury of the Empire, led to continuous debasement of the currency, with accompanying inflation, forced the military to ally with untrustworthy allies and to fill its ranks with tens of thousands of 'barbarians.' The incessant manpower demands for the wars and occupation of the Middle East led to the stripping away of garrisons along the Upper Rhine and the abandonment of Britain, with eventually devastating consequences. Gradually the garrisons of Gaul and along the Danube were also hollowed out.

"So maybe, as Maybury so cavalierly writes, '... there was a reason for it.' But, if history is at all our guide, I would suggest that we not be sanguine about what the future may hold for the US of by God A." – Paid-up subscriber Mike McCormack

Brill comment: No offense, Mike, but you clearly aren't familiar with Richard's work. If you were, you'd know that he agrees. In fact, no one we know has a better understanding of these issues than Richard. But as Doc mentioned yesterday, our job as investors is to see the world as it is, not as we wish it to be.

Again, for a limited time, you can get access to both Richard's U.S. and World Early Warning Report AND Doc's Retirement Millionaire for less than the usual cost of either one alone. If you're not already a subscriber to these two must-read publications, this offer is truly a no-brainer. Click here to sign up now.

"Why is PJ O'Rourke apologizing for the cover of American Consequences? I liked it and thought it was tasteful, almost a silhouette and not even racy let alone offensive. What is wrong with celebrating a beautiful female form? Haven't great artists done so for centuries? No P.J., don't back track because of narrow minded prudes – stand your ground in future. It was just a pole dancer for heaven's sake – not a porn star!" – Paid-up subscriber Steven I.

"Thank you Debbie Wark for 'chastising' Mr. O'Rourke for his poor taste in a cover photo. And thank you Mr. O'Rourke for owning up to your indiscretion. Teenage daughters have a way of keeping us humble. Otherwise, I do appreciate your insights and your unique approach to politics, etc." – Paid-up subscriber Becky N.

"The more experience I have with Stansberry products the gladder I am that I signed up for the Alliance. Just like Doc Eifrig, the July Stansberry's Credit Opportunities issue put the brakes on buying new bonds this month because conditions are not right. I LOVE that. As badly as I wanted to buy more bonds this month, the last thing I want to do is risk our retirement money by making bad decisions. Thank you, Porter, Bryan, Mike and Bill, for enabling me to make informed decisions. At 66 I cannot afford put capital at risk when there is no worthy proposal in the market. By avoiding the loss from one bad bond purchase, I can pay for my entire Alliance lifetime subscription. Now THAT is value. Thank$ a million." – Paid-up subscriber Bill Wanamaker

Regards,

Justin Brill
Baltimore, Maryland
July 20, 2017