Dear Fellow Trader,
As you know, we have made some significant changes at Money Map Press. Our goal is to return to the ethos of making investing profitable. Naturally, that changes my tone slightly regarding what I want to focus on here at Midday Momentum. But it's not the end of trading within this letter.
Why?
Because, when done correctly, options and trading present ways to maximize the profitability of investing. As I noted on Friday, I'm not a fan of wild speculation on call options. For example, buying a call with only a 30% probability of success - can make a lot of money if the stock explodes higher. But you can also lose the entire position quickly (which is why I preached about using stops and keeping your stakes smaller).
But let's say we add another call option into the mix at 30%.
What are the odds that both finish in the money (and are profitable)?
The answer is 30% times 30%. And that is just 9%.
But what about my preferred strategy of selling put spreads on stocks that I want to own? What about selling puts with an 80% probability of success?
And what happens if we do that three times?
The probability that all three trades 80% times 80% times 80% is 51.2%.
Those are better than even odds.
This isn't the end of trading for me. But it brings us back into a deeper conversation of important trends, understanding sector momentum, and combining other important metrics to improve your profitability.
So let me show you the three important themes that will drive our investing and trading...
The Doctors are In
We will focus our attention, as usual, on insider buying at companies. As is proven in the following paper, executives at companies experience the best source of alpha between the time they buy their stock and the time the markets announce the purchases. We want to replicate their success. Remember that selling puts or buying the stock at lower levels of companies with strong fundamentals than the executive's purchase is a terrific long-term strategy. (Anginer, Deniz and Hoberg, Gerard and Seyhun, H. Nejat, Do Insiders Exploit Anomalies? (November 1, 2018). Marshall School of Business Working Paper No. 17-1, Available at SSRN: https://ssrn.com/abstract=2625614 or http://dx.doi.org/10.2139/ssrn.2625614)
Second, we want to focus our attention on value and momentum in a buy-and-hold environment. A portfolio of value stocks using the Piotroski F- Score and the Ben Graham Number has delivered some of the best returns of the last 30 years. We will target and replicate this strategy where applicable. I will be talking about this much more over the weekend in Postcards. (Amor-Tapia, Borja and Tascon, Maria Teresa, Separating Winners from Losers: Composite Indicators Based on Fundamentals in the European Context (February 8, 2016). Finance a UVA - Czech Journal of Economics and Finance, 2016, Available at SSRN: https://ssrn.com/abstract=2729191)
Finally, we are looking for a return to weekly momentum in the cycle of investing. We don't need to use options when trading momentum, as we can use leveraged ETFs as a better tool and include stops based on the signals. A measurement of capital inflows and outflows through market momentum will tell you down to the day when capital is screaming out of the market or a new short-term rally is underway. (Thorp, Wayne, covering Grant Henning's "The Value and Momentum Trader," AAII https://www.aaii.com/journal/article/grant-hennings-technical-momentum-stock-trading-system)
You can trade options with all of these strategies - but I preach the need to focus on selling premium instead of playing the lottery.
Importantly, I'll show you that you can use stocks as a tool to make solid trades and great long-term investments using various value, insider, and momentum strategies. (Click Here to Master the Fundamentals with me in Flashpoint Elite)
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Recap: The World's Biggest Indicator (Momentum) is Red
Well, that didn't take long. Energy stocks took a beating today, leading the market lower due to questions about the debt deal and greater uncertainty about OPEC's upcoming meeting. NVIDIA (NVDA) continues to chug higher, hammering shorts. The AI momentum rally remains incredibly strong, while productive parts of the market and economy keep weakening further.
Mark's Putting $100k On The Line
Last week, my good friends Mark Sebastian and Andrew held a compelling Gamma Bomb event that was quite the success.
They spent a full hour educating everyone about this exciting opportunity, and an intriguing question came up during the Q&A...One participant asked, "Mark, how confident can you be that this Gamma Bomb will occur?"
That's a fair question, and Mark's response was illuminating: A similar Gamma Bomb happened back in 2018, eradicating a $2 billion ETF in just one day...And brought one trader an astonishing return in a single month.
Now, we are looking at a potential Gamma Bomb situated right in the core of the S&P 500...Which could be 200 times LARGER than the 2018 event.
At this moment, all the signs are lining up, echoing what we saw in the past:
• Market volatility is low, with the VIX possibly hitting its "magic number" by July 1st.
• Major traders are placing $500 billion a DAY on ONE particular volatility-based trade. However, as the VIX falls, the risk of that trade more than DOUBLES...
• And when the "fear gauge" hits that magic number, it could DOUBLE yet again.
When that occurs, even a minor 1% shift in the S&P 500 could trigger the Gamma Bomb. That's just a 40-point move - the kind that happens regularly.
(We've seen it twice in just the first week of May.)
Now, neither Mark nor I possess a crystal ball. But Mark is profoundly confident in the Gamma Bomb's potential. So confident that he's staking $100,000 on ONE trade.
And it's important to remember that it's not just his money at stake - it's also his clients' money. So this isn't some reckless gamble...He's risking his credibility as a hedge fund manager, too.
And he's inviting YOU to seize this opportunity. Because anyone can join this trade with $1,000 or less...And stand to gain a substantial windfall in as little as 24 hours.
Their next LIVE trading session is set for tomorrow at 2:30pm SHARP...
So if you're intrigued and want to get in, I recommend checking this out as soon as possible.
Cheers,
Garrett
The post Momentum Is Negative - Here Are Three Wealth Strategies to Employ Right Away appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.