Volatility has come roaring back into the markets. Fearful headlines and signs of panic are everywhere.

The coronavirus pandemic was the first shoe to drop. Then, the energy sector went into free fall… and took the broad market down with it.

On Monday, oil prices dropped into negative territory for the first time ever. After the news, the CBOE Volatility Index (VIX) – Wall Street’s so-called fear gauge – spiked almost 20%.

Oil prices have since rebounded, but the market is still fundamentally broken.

It’s natural to feel anxious when the markets tumble. But our advice remains the same across all PBRG publications: Remain calm.

Remember, wild market action is the reason we created our asset allocation model. Its diversity protects us from unpredictable market swings like those we’ve seen as of late. Plus, we use risk management to mitigate our losses.

Having a robust system in place allows us to use volatile markets to our advantage…

You see, we view volatility differently from typical investors.

Where they see fear and panic, we see opportunity. Regular Daily readers know we look forward to these volatility spikes. They mean an instant “pay raise” for us.

And today, I’ll tell you about one strategy editor Teeka Tiwari and his team use to strike for profits when others are fearful…

Getting Paid Up Front

At PBRG, we call this strategy “Instant Cash Payouts.” It’s when we offer shareholders a form of “insurance” on stocks they own by using “low-ball offers.”

In technical terms, it’s called selling put options.

Here’s how William Mikula, Teeka’s chief income analyst, describes the strategy…

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 they 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, then rise higher.

But here’s the best thing…

William says the profits from Instant Cash Payouts increase when investors are fearful… like now. Think about it from your own perspective: You’re more likely to pay up for insurance if you feel a life-altering event is almost certain to happen.

It’s no different in the stock market. But what’s great is, this strategy works in all market conditions…

Wall Street’s Fear Factor

To measure investor fear, William follows the VIX.

Now, the VIX measures the S&P 500’s expected volatility over the next 30 days. And it’s the first thing he looks at each morning. That’s because it influences how much cash we earn for our Instant Cash Payouts.

And even though volatility is high right now, the chart below shows just how much higher it can go…

image

William uses a reading of 20 as the dividing line: a VIX reading above 20 means investors are fearful and nervous. A reading below 20 means investors are calm and complacent.

After spiking to all-time highs last month, the VIX dropped below 40 last week – still in fear factor territory. But the plunge in oil prices caused it to rise again.

And that means higher Instant Cash Payouts – and more income – for savvy investors.

To help you profit from the current volatility, I asked William to list three trades he’s watching closely. Once the levels 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…

Home Depot

HD

$185

$175

5.4%

45%

$205

Johnson & Johnson

JNJ

$130

$120

7.7%

35%

$150

UPS

UPS

$90

$85

5.6%

40%

$110

If you don’t know how to make a low-ball offer (sell a put option), William says to consider buying shares when they drop to the level he’s indicated in the fourth column.

Once the 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.

Regards,

signature

Chaka Ferguson
Managing Editor, Palm Beach Daily

P.S. Instant Cash Payouts aren’t the only hedge fund-like strategies Teeka and William use in their elite Alpha Edge service. They’ve created an entire system that allows you to profit regardless of market conditions.

You can learn more about Alpha Edge right here