Over the past week-plus past week, my colleagues have written about a fair number of “What If…” situations.
Charles took a sober look at the possibility of nuclear war. Adam wondered about a serious spike in oil prices. Charles had a little fun with the question, “what if it’s the 1990s all over again?”
If you missed any of these great articles, you can find them all right here.
There are always going to be “What If…” scenarios to consider.
I think any good investor – really, anyone with a stake in the world around them – would do well to keep the big picture in mind.
And it all but goes without saying you can’t prepare for everything, no matter how diligent you are. The best-laid plans can go to pot in the blink of an eye. Uncertainty is constant, from the way today’s barista makes your coffee to wondering if your retirement account will be worth anything five, 10, or 30 years down the road.
In my line of work, I’ve come to embrace uncertainty. More specifically, I follow volatility – uncertainty’s angry sibling.
My corner of the world is all about the Federal Reserve and the Treasurys market. Yes, the plain old Treasurys market, about as boring as it gets for your casual market-watcher. You might see the Fed mentioned in your daily skim of the news, maybe you noticed a tiny percentage change in rates.
You know these rate changes are important. The Fed is, after all, our central bank. It’s supposedly the heart of our economy, the biggest in the world. But, at the end of the day, if you’re looking to grow your wealth at a faster rate than the tiny percentages you see associated with the Fed, you’re looking elsewhere.
Well, I’m here to tell you, you’re missing something.
You see, when the Treasury rates move up or down by a few tenths of a percentage point, that means billions and billions of dollars flowing through our economy are affected. Sometimes a bad jobs report is the reason we see a change; sometimes it’s Twitter-based nuclear brinksmanship.
Uncertainly breeds volatility which means fluctuating rates. But this is where the profits come in…
This brings up to options. You can’t buy options on Treasurys directly, but they’re such a good way to generate solid returns in a short amount of time that I had to find a way in.
I needed a proxy that would closely track the 30-year Treasury bond. After lots of trial and error, searching and tweaking, I hit upon two exchange-traded funds (ETFs): ProShares UltraShort 20+ Year Treasury (TBT) and iShares 20+ Year Treasury Bond (TLT).
And, simply put, I recommend puts and calls on TBT and TLT.
You might find it strange that I’d just up and tell my specific investment strategy. Gurus hold to their strategies like their first born; employees sign non-disclosure agreements; the word “proprietary” gets thrown around a lot.
I don’t mind.
The key here, of course, is knowing when to get into these plays and when to get out.
It’s pinpointing the right investor overreactions to play off of, and then positioning yourself to have a shot at maximum profits.
You could simply trade the TBT and TLT straight up. You might even made a little profit on it. But options transform small-ball gains into something more much more substantial.
Here’s an example with TBT from my track record…
Over a two-day span, you could have netter a 7.22% gain in two days. Certainly nothing to sneeze at. It beat the market 5 times over!
But it can’t compare to the 94% gain you could have grabbed using options over the same 48 hours. That’s 120 times more than you would’ve made on just TBT alone.
That’s just one example. There are many others.
Which is why I embrace uncertainly. The “What If…” questions don’t really scare me (well, except for the idea of nuclear war, which should terrify everyone). The markets will inevitably overreact to these big and complicated events, and, when they do, my readers profit.
It’s kind of simple, actually, and it’s a proven approach to the markets.
Stay tuned tomorrow for a deep dive into some of the science behind my approach and how it even relates to the father of gravity, Isaac Newton himself!