More Risk = More Reward
Every great investor, from Warren Buffett to Michael Burry, understands this principle. Otherwise, we wouldn’t know them by name.
We want to maximize the payout for every dollar we risk.
The concept is pretty straightforward. Yet, two things stand in our way, both of which are intertwined: greed and perspective.
Our emotions lead us to bad decisions that we justify with narrow perspectives.
And pretty soon, it’s going to lead to a wave of bankruptcies the likes of which we’ve never seen.
The irony is that it’s ENTIRELY AVOIDABLE with a simple hedging strategy.
Let us put it in perspective…
The Financial Crisis of 2008…
The Regional Banking Failures of 2023…
And the wave of bankruptcies in our future could all have been avoided, and avoided quite cheaply.
For most of the largest institutional players, it’s sadly too late. But for us, there’s STILL TIME TO ACT!
Many of our readers are focused on either building their retirement nest egg or protecting it. However, we recognize a sizable number of you want to amass generational wealth — the kind that can TRULY CHANGE LIVES.
So, what if we told you that right now is the CHEAPEST time to hedge your portfolio?
In fact, we’ll do you one better… we’ll show you exactly how to gauge the cost of hedges, so you know when they’re expensive and when they’re a steal.
Jim Woods has been all over this for weeks, telling members what to look for in his daily premarket newsletter, Eagle Eye Opener.
And while the juiciest stuff is reserved for his members, we’re going to show you just one of the ways Jim gauges the cost of hedging and how he does it.
The Price of Protection
Imagine you sell volcano insurance to folks on the Big Island of Hawaii.
While the volcano is active, the lava almost always runs down one side of the mountain.
So, you price insurance for the “safe” side cheaply. And the longer it’s been since that side’s been hit, the cheaper you price it.
At some point, folks just stop buying the insurance, figuring they can save a few bucks, even if you offer it for just $100 per year.
One day, the volcano erupts, and a cross-breeze cuts over the top of the mountain, sending magma down the “safe” side, destroying every house in its path.
As folks rebuild, you make a fortune selling volcano insurance to people for $10,000 a year who had refused your insurance at $100 per year.
This is exactly what happened to regional banks.
They could have hedged against Fed interest rate hikes for pennies. Instead, they opted to save money and risk their entire business.
Unfortunately, they weren’t the only ones.
Bloomberg recently highlighted the rampant problem among private equity firms, who borrowed money to buy out businesses, with interest expenses up as much as 20,000%.
Yet, the problem is far more pervasive than many folks realize.
We’ve only seen the tip of the iceberg. Corporations binged on cheap debt during the pandemic. When it comes time to refinance, many will be buried under their interest payments.
All anyone had to do was give up a touch of profitability to cover outlier risk. The reduction in potential risk was leaps and bounds worth the profits these businesses would have lost.
But hindsight is 20/20 and often easier when you aren’t blinded by the Fed.
The Stock Market ‘Tell’
Let’s assume you have a portfolio that is 95% invested in stocks.
How could you hedge the risk of all your holdings with just 5%?
One word: leverage.
Options are one of the most misunderstood market mechanisms around.
People think they’re a quick ticket to riches, when, in fact, they’re meant to supplement a well-rounded wealth-building strategy.
And just like volcano insurance, options are worth more or less depending on how in demand they are.
That’s why Jim Woods looks at the S&P 500 Volatility Index, known as the VIX.
We’ve talked about the VIX before, as it’s one of the most wildly quoted indexes when markets fall.
Yet, few look at it when stocks are climbing… But they should.
You can think of the VIX as the interest institutions have in hedging their portfolios.
When interest is low, the VIX drops, as does the cost of most options in general. That’s why we often see the VIX drop as the market rises.
Conversely, when the market drops, people want to buy insurance because they’re panicked. So, the VIX rises.
You can see the relationship in the monthly chart below:
Intuitively, it makes sense.
The cost of insurance (options) is lowest when stocks appear as if they’ll never drop.
When markets crash, people panic and try to protect themselves.
And right now, the VIX is at its lowest level since 2019, making options incredibly cheap to own.
That’s why this is PRECISELY the time to incorporate options into your portfolio.
Now, we wouldn’t suggest going in without a plan, especially if you’re new to the options game.
Jim Woods knows this better than anyone.
As a former hedge fund trader and market analyst, Jim knows the ins and outs of options, and particularly how to use them to REDUCE risk.
Heck, that’s the first principle he teaches folks who subscribe to High Velocity Options.
Jim leverages his deep knowledge of markets and trading experience to provide members with trading ideas that can regularly see GAINS OF 100% OR MORE.
Look, the market won’t stay this way forever.
Don’t miss your chance to capture these TIMELY opportunities.
Click here to see how YOU can REDUCE RISK & MAXIMIZE PROFITABILITY!
