Panic!
That’s exactly what we are witnessing in the markets right now. But this panic can lead to opportunity!
Let me explain…
The CBOE Volatility Index (VIX) jumped over 50 today. That means the market is pricing in a 68% probability of a 50%-plus move in the S&P 500 (up or down) from current levels over the next 12 months. Let me repeat that – 50% up or down!
In 2009, that number was as high as 85%.
So that uncertainty is starting to creep in…
Part of that is thanks to the coronavirus and the U.S. government’s lack of a good strategy for combatting it. No one knows how this outbreak will end, but there is optimism coming out of places like South Korea and China (I believe the news coming from South Korea more than China).
In both countries, the rate of increase in coronavirus cases is slowing dramatically. In China, of the 80,000-plus people who were diagnosed with COVID-19 (the disease caused by the coronavirus), more than 57,000 have been sent home. And businesses are ramping back up. In the U.S., we are nowhere near the “peak virus” stage, which is expected to occur in April or May.
With that being said, the bigger news today was the oil shock.
Fortunately, we had no oil positions in The War Room portfolio… until today. With the huge move lower, we started to look at some oil exchange-traded funds (ETFs). I can’t tell you which ones because that would be unfair to our members.
But I don’t think oil prices will drop to zero despite the 30% decline today. With 95% of the cars in the world running on gasoline, the chances of that happening are slim.
Right now there’s an oil war between three parties: U.S. shale, OPEC and Russia. These are the three largest producers of oil, and this is a war to put one or more parties out of commission.
Based on the low cost the Saudi Arabians enjoy in OPEC, they will emerge scarred but not dead. Russia needs oil revenues to survive. The U.S. shale industry will likely be the victim. The industry is overleveraged, and the prospect of a glut in oil means companies will either be acquired or go out of business.
Action Plan: Buckle up for a huge roller-coaster ride over the next few days, weeks or months, and set your sights on high-quality stocks, dividend payers that will boost your income and some smart speculation in places like the energy sector.
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About Karim Rahemtulla
Karim began his trading career early… very early. While attending boarding school in England, he recognized the value of the homemade snacks his mom sent him every semester and sold them for a profit to his fellow classmates, who were trying to avoid the horrendous British food they were served.
He then graduated to stocks and options, becoming one of the youngest chief financial officers of a brokerage and trading firm that cleared through Bear Stearns in the late 1980s. There, he learned trading skills from veterans of the business. They had already made their mistakes, and he recognized the value of the strategies they were using late in their careers.
As co-founder and chief options strategist for the groundbreaking publication Wall Street Daily, Karim turned to long-term equity anticipation securities (LEAPS) and put-selling strategies to help members capture gains. After that, he honed his strategies for readers of Automatic Trading Millionaire, where he didn’t record a single realized loss on 37 recommendations over an 18-month period.
While even he admits that record is not the norm, it showcases the effectiveness of a sound trading strategy.
His focus is on “smart” trading. Using volatility and proprietary probability modeling as his guideposts, he makes investments where risk and reward are defined ahead of time.
Today, Karim is all about lowering risk while enhancing returns using strategies such as LEAPS trading, spread trading, put selling and, of course, small cap investing. His background as the head of The Supper Club gives him unique insight into low-market-cap companies, and he brings that experience into the daily chats of The War Room.
Karim has more than 30 years of experience in options trading and international markets, and he is the author of the bestselling book Where in the World Should I Invest?
