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Investors, as a group, tend to respond to shifts and changes in popular sentiment, especially when they perceive that there could be an impact on a particular business sector.
When that happens, you can often find opportunities for profit by going against the grain. These are almost always going to be short-term plays, options trades that take advantage of the natural see-saw effect that comes from a large market swing.
This week, I've got a few different trends I'm keeping my eye on.
Legislation to legalize marijuana at the federal level is hitting the House floor as soon as next week, and news of the vote sent shares of popular pot stocks soaring.
Meta Platforms Inc. (NASDAQ: FB), which took a 51% pounding after an earnings report last year revealed the extent of its expenditures on metaverse development, is up nearly 20% again after the last 10 trading sessions.
And finally, the ongoing Russia-Ukraine conflict has suppliers of oil and natural gas scrambling to resolve the supply crisis brought about by cutting Russia out of the international market.
Let's take a closer look at the potential repercussions of each of these situations. Here's exactly how to play them...
Watch for the Other Shoe to Drop on Pot Stocks
News of the marijuana vote sent shares of popular pot stocks soaring, with Tilray Brands Inc. (NASDAQ: TLRY), Canopy Growth Corp. (NASDAQ: CGC), and Sundial Growers Inc. (NASDAQ: SNDL) gaining more than 36%, 12%, and 47%, respectively, in last week's trading.
I've long been in support of legalizing marijuana, but there's a little more to the story than investors are considering.
The upcoming vote is on the MORE Act, which already passed in December 2020, so it's expected to pass again. Once that happens, though, it moves to the Senate, where things start to look murkier.
There currently aren't enough Senators on board to get to the 60 votes needed to pass a bill - and that could result in some serious headwinds for the recent pot-stock rally.
At this point, any change in the narrative could temporarily drive shares of cannabis stocks lower, and that makes for an interesting trade opportunity.
Let's buy Tilray Brands Inc. (TLRY) May 20, 2022 $6/$5 put spread for $0.40 or less. Plan on selling the TLRY May 20, 2022 $6/$5 put spread for a 100% profit or if shares of TLRY close above $9.05.
Meta Platforms Is On the Rise
It's understandable why investors are scared about the huge amount of cash Meta is pumping into the metaverse. But here's the thing - they can afford it, and they're going long on that investment. Years from now, when the metaverse is worth billions, they stand to make all that money back and more.
In the short term, here's why I think the recent rally for Meta is not just a temporary fad.
More than 2.9 billion people used its social networks each month during 2021, which resulted in the company generating $117.9 billion last year (2021).
The company boasts profit and operating margins of 33.35% and 39.65%, respectively.
It has a rock-solid balance sheet with $48 billion in cash and just $14.45 billion in debt.
Those are great numbers, and the stock's valuation looks very attractive.
The company's trailing 12-month P/E ratio is just 15.5, which is less than half that of the Nasdaq 100 technology index, which trades at 32.
At this point, I like buying the FB May 20, 2022 $240/$245 call spread for $1.75 or less. Plan on selling the FB May 20, 2022 $240/$245 call spread for a 100% profit, or if shares of FB close below $200.
Cheniere Energy Will Ride Demand for Natural Gas
For the energy supply crisis, I'm watching Cheniere Energy Inc. (NYSEAmerican: LNG), the Houston, Texas-based liquefied natural gas (LNG) infrastructure company.
The company is the largest producer of LNG in the United States and the second largest LNG operator in the world.
After Russia's invasion of Ukraine, it's become increasingly clear that European Union must reduce its reliance on Russian natural gas if they want to have any effective plan to protect its Eastern member-countries from further Russian incursions.
Any solution will involve offsetting Russian gas imports with imports with allied countries, such as the United States.
That could be a huge tailwind for Cheniere Energy!
At this point, let's buy the LNG May 20, 2022 $155/$160 call spread for $2 or less. Plan on exiting the LNG May 20, 2022 $155/$160 call spread position for a 100% profit or if shares of LNG close below $122.
Given everything that's happening in the stock market, it's more important than ever for investors to find unique places to put their money. And the most lucrative investment I know of at the moment isn't even a stock at all...
It's something I call "pre-IPO rights" - the right to claim shares in a company yet to go public. Often these rights can be had for a buck or less - the ones I'm thinking of, belonging to a crypto business, cost just $0.70 or so. But I've seen projections that hint these could rise to $7 over the next year.
This company literally gives you the chance to play the crypto boom without owning a single crypto, with the potential to make 10X your money in the next 12 months. And the window to get in is closing very, very soon.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.