Three Trades to Profit From Coronavirus Fears

The coronavirus is no longer just China’s problem. It’s gone global…Apart from the threat it poses to global health, it’s disrupting international supply chains. And that’s striking fear in the markets.


By William Mikula, analyst, Palm Beach Daily

The coronavirus is no longer just China’s problem. It’s gone global…

Apart from the threat it poses to global health, it’s disrupting international supply chains. And that’s striking fear in the markets.

Since reports that the virus has spread to multiple countries hit the wires on Monday, all three major stock indexes are down about 3–5%. In fact, the Dow and S&P 500 suffered their worst single-day losses in two years.

And as the market fell, fear and panic spread.

To measure this, we keep a close eye on the market’s fear gauge, the CBOE Volatility Index (VIX). As you can see, it’s at its highest level since last August.

Chart

We use a reading of 20 as our dividing line: a VIX reading above 20 means investors are fearful and nervous. A reading below 20 means investors are calm and complacent.

And with the current level above 20, this tells us investors are worried.

But here’s the thing… This volatility is creating hidden opportunities.

You see, at PBRG, we look at the market differently from the average investor.

We advocate smart asset allocation and multiple investing strategies to grow – and protect – our wealth, regardless of market conditions. That’s how hedge funds and Wall Street’s elite make their billions each year.

So while other investors are running scared, we’re sharpening our knives and getting ready to pounce. And today, I’ll share three trades we’re ready to strike on at any moment.

But first, let’s look at the strategy we’ll use from our toolkit…


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How to Earn Instant Cash Payouts

We call this strategy Instant Cash Payouts. It’s when we offer shareholders a form of “insurance” with “low-ball offers.”

In technical terms, it’s called selling put options.

Using a unique aspect of the options market, we agree to buy investors’ shares for a certain price and a certain length of time, in exchange for an upfront cash payout.

The cash is ours to keep – no matter what happens. And we only have to buy shares if they drop to our agreed-upon price.

The bottom line: We get paid to buy companies we love – at a discount. That’s what makes the strategy so powerful.

Now, we only make low-ball offers on the best companies in the market. These are companies that dominate vital industries. They gush free cash flow and profits, and they look after shareholders.

More importantly, they’ll make it through a market crash with relatively minor damage.

Sure, their share prices might fall a bit, but it won’t be a mortal blow. They’ll eventually recover.

Here’s the best thing…

Our Instant Cash Payouts increase when investors are fearful… like now. Think about it from your own perspective: You’re more likely to pay up for insurance if you feel an event is almost certain to happen.

It’s no different in the stock market. But what’s great is, this strategy works in any type of market…


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Wall Street’s “Fear Gauge”

Now, the VIX measures the S&P 500’s expected volatility over the next 30 days. And it’s the first thing I look at each morning. That’s because it influences how much cash we earn for our Instant Cash Payouts.

And even though volatility is high right now, the chart below shows just how much higher it can go…

Chart

As you can see above, “fear” spiked as high as 80 during the market meltdown of the 2008 financial crisis.

That’s triple where we are now. So we can easily double our income payouts if we get a similar market panic from the ongoing coronavirus scare.

In this scenario, we’d enjoy annualized gains close to 50% or more from a conservative, income-generating strategy.

Again, the ultimate catalyst is irrelevant. Even if we find a cure for coronavirus or it suddenly disappears, the time to prepare for higher volatility is now.


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Volatility Watch List

To help you profit from the current volatility, I’ve listed three trades I’m watching closely. Once the levels I’ve marked are hit, we plan to strike…

Stock

Ticker

Wait for price to drop to…

Make a low-ball offer to buy shares at…

This will give you a “cushion” of…

And target an annualized return of…

Stop making low-ball offers when the price hits…

American Express

AXP

$115

$105

8.7%

28%

$135

Johnson & Johnson

JNJ

$135

$125

7.4%

28%

$165

UPS

UPS

$90

$85

5.6%

30%

$115

If you don’t know how to make a low-ball offer (sell a put option), then simply buy shares when they drop to the level I’ve indicated in the fourth column.

Once the crisis passes, you’ll be glad you did.

And remember, always do your homework before making any trade. And never bet more than you can afford to lose.

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