Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

Turn a $500 Stake into Nearly $2 million – In Just Over a Year

Turn a $500 Stake into Nearly $2 million – In Just Over a YearI know that may sound impossible to believe. But it’s exactly the opportunity a small group of people get each year. And it’s all thanks to a set of alerts so simple, you can read and execute them in your trading account in five minutes or less. We’ve put together a special website that has all the details. Check it out here.

 

 

Profit From Volatility

By Robert Rapier on April 10, 2018

After a relatively smooth upward climb over the past nine years, volatility has come roaring back to the markets. I commented to a friend recently that the first quarter was brutal, and he said: “Oh, and how much were the indices down in the quarter?”

He has a point, which I will get to below, but my point was about volatility.

A Smooth Ride

I posted the following graphic in the recent article Nine Years Of Bull to put the recent market swings into perspective:

Overall, there have been some corrections during the past nine years, but it’s been a relatively smooth period.

Volatility Returns

But the market became more volatile in the first quarter. Let’s look at that graphic for the past year to highlight how wildly things began to swing in Q1:

But my friend’s point was, despite all of that volatility the S&P 500 was only down 2% in the first quarter. Of course, that’s not much consolation for investors who sold in a panic as the S&P 500 lost more than 10% in early February. 

I count myself among those concerned about the spike in volatility. For me, it signals that the chance of more 10% or more flash crashes in the near term is growing. 

Use Volatility to Your Advantage

But the positive side of that volatility is that it allows investors to buy quality companies that have become overvalued. I can’t tell you how often I have looked at an Apple Inc. (NASDAQ: AAPL) or an Intel Corporation (NASDAQ: INTC) or a Pfizer Inc. (NYSE: PFE) and thought — I would love to pick that up at a 10% discount.

Opportunities like that on quality companies often present themselves only during these violent market swings. Sure, I could have bought Apple in January for $175 a share. But I wanted it for $160 a share. 

Guess what? I got it for that. Then I sold it a month later at $175 a share. I didn’t get the lows on that cycle (who would have believed I could have gotten it for $155 a share?) or the highs (~$180 a share), but I did manage to turn a profit in a whipsaw market.

Keep Some Powder Dry

Here’s the thing. I always keep a little cash in reserve for that rare opportunity to pick up quality companies at dream prices. At any one time, I have maybe a dozen limit orders out for great companies at deep discounts to their current values.

Most of the time the orders don’t trigger. It may be asking a bit much to pick up Applied Materials (NASDAQ: AMAT), which is currently trading at $52, for $40. But if the market plummets, I have a limit order at that price waiting to execute.

There is one risk in this approach, and that is if there is a huge one-day drop in the market. If you have too many of these “dream price” limit orders open, a steep stock market drop like the 22.6% drop of Black Monday in 1987 could see them all execute at the same time. So, be sure you have enough cash in reserve to cover such a rare event.  

Shorting With Options

Of course, this strategy works both ways. I explained in Safely Betting Against Tesla that I also like to short companies that I believe to be overvalued, but I like to catch them spiking upward on volatility.

Going short, however, can be quite risky. So as I explained in that article, I utilize a modified strategy with options that protects me against unlimited losses should the stock price soar. 

Editor’s Note: Options can also be used to safely generate steady income during periods of market volatility as explained HERE.


You might also enjoy…

 

Boost Your Annual Income By As Much As $12,036

We’ve uncovered a unique income-boosting opportunity that allows you to collect up to $1,003 a month in extra government cash. 

This plan is available to everyone over the age of 18.

The amount you make isn’t dependent upon your marital status…

How much money you currently make…

Or even how much money you made in the past.

Best of all, because of the way Uncle Sam views the money that comes from this plan, your current—or future—Social Security benefits won’t be affected, either. 

There’s still time to get your name on the list for the next check run. 

I’ll show you how here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.