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"Volatility" is the name of the game right now! Within the past week, the Chicago Board Options Exchange Volatility Index, the VIX, has seen highs we haven't seen since late January.
You don't have to look hard to figure out why – we're coming out of the weakest seasonality of the year, for one thing. For another, investors were freaked out about a sinking dollar, rising rates, and that scary "I-word," which helped lead a tech stock rout and a boom in recovery plays like cyclicals and energy.
And now wouldn't you know it, stocks, including the Nasdaq, are swinging up in the other direction, and no one that I can see is sweating inflation.
If that's not volatility, I don't know what is.
Having a hedge against all this is always a good idea – you want something that'll go up in value when stocks go down, like buying puts on a stock or index.
But my favorite kinds of hedges are the ones that are profitable pretty much all the time, even when stocks are going up.
Here's one of the best – and one of my favorites…
Hedge with Real Estate Without Owning a Square Foot
I have a lot of hedges running that help keep me in the green – precious metals, cryptocurrencies (including small, lesser-known altcoins we've talked about), and real estate.
Owning the physical stuff – gold bullion and coins, crypto wallets, and actual acreage – is good, but I'll show you it's not strictly necessary.
I own real estate – homes and productive farmland – in four different countries. Here in the United States, but also in New Zealand, Panama, and Colombia. That gives me a hedge against a falling dollar, but it also protects me from exposure to fluctuations in the local currencies, too.
Real estate in the United States is booming at levels we haven't seen for 15 years, but the quality of the debt is better, and interest rates are lower than the boom that came before the crash of 2008. There are a lot of conflicted analysts out there right now who don't see why real estate should be booming at a time of high unemployment and high uncertainty, but the truth is there's a lot of cash out there, and a lot of people with cash are parking it in real estate. Mortgage rates here in the United States are still near historic lows, and there's no sign the Fed will mess with that mojo anytime before 2022 or maybe even 2023.
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So this is a position you can safely run for the long term. And like I said, you don't have to own any property to protect yourself and take down profits at the same time.
You can own the iShares U.S. Real Estate ETF (NYSEArca: IYR) that tracks the Dow Jones U.S. Real Estate Index, an index of real estate investment trusts (REITs), both commercial and residential, but also development and management, too.
It's up about 45% since the lows last March, which doesn't sound that impressive when you compare it to the stock market, but remember: This isn't stocks, and besides, real estate isn't remotely correlated with shares. This is about protecting yourself when stocks move against you and smoothing out volatility.
Of course, it's also about making money. It pays a 2.26% dividend, but for me, the really fun thing is that IYR is an optionable security, with lots of very liquid options to chose from all the way out until January 2023. You could write covered calls for every 100 shares of IYR you own, to pocket some monthly income no matter what the markets do – that's just one easy trade to make.
I know a trading strategy that could potentially allow an investor to "name their price" and own IYR or any optionable stock at a what might be a steep discount – and that's the "worst-case scenario!" It's possible to use it for a crack at pocketing instant income, too.
I recently used this strategy to help put together my most successful year ever – 23 wins, ZERO losses since April 2020, during one of the wildest markets on record. I'll tell you all about that right here.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.