Let me start by saying this article isn’t for everyone.
But if you’re the kind of trader/investor always looking for that next big play, even if it means taking on a little more risk, this is written directly for YOU.
So, here are my three BIG profit plays for 2018…
I’d also like to note that this article originally had a different title in mind when I first started writing it. I was going to call it, “3 big profit plays for the top.”
That’s right, I truly believe it’s time to start thinking about the inevitable top for the stock market, when it will happen, and how to profit massively when it does…
So, as you may have guessed, this article is based on A) the fact that I see the top coming sooner rather than later, and B) it’s close enough that I was happy to call these ideas my profit plays for this year.
Why?
I could probably list 100 reasons, but here are a few to chew on:
- Other than the “hiccup” from late 2015 to early 2016, we’ve been on a NINE-year bull market ride!
- Before any bear market, you always get the “blowoff” top, which means stocks go crazy just before the top. Well, I’d call the current state of stocks a blowoff…
- When I think of the big signs we had just before previous bubbles burst, I always think about the Beanie Babies craze. Little stuffed animals, or whatever they were, were being collected, traded, and valued at thousands of dollars a pop! Now, slot in cryptocurrencies…and as you may have noticed over the past few weeks, cryptos have been sliding hard.
- The way stocks have been ripping (on the back of things like bitcoin), the Fed almost must raise interest rates for inflation’s sake. And as we know, higher interest rates should have an inverse effect on stocks…
We’re also just due for a downturn, plain and simple.
But I’d like to note that downturns/recessions/bear markets are NOT the worst thing in the world. In fact, they’re nothing more than a regular (dare I say, healthy) part of the economic cycle.
Stocks simply can’t go up forever, so we need a bear market to bring things back to reality before another bull market can take hold.
The idea is getting that downturn before things get even crazier and the fall becomes brutal.
But let’s get back to the main point of this article: my three profit plays for the top in 2018…
First, the volatility play.
A regular partner to any prolonged period of strength for stocks is a very little volatility, which we’ve had for almost a decade now.
There are actually a lot of people who don’t do anything but short (bet against) volatility once it creeps up slightly. I know one guy who manages money and that’s all he does!
But as you can imagine, when the market finds a top and turns around, it’s time for volatility to explode through the roof. And luckily, we can track that volatility through the Volatility Index, or VIX ($VIX).
So here’s my two-part play on volatility:
1. Accumulate a position in VIXY, which is an ETF that’s based on the VIX, every time the VIX dips down below $9.50 or so.
2. Buy VIX call options. This allows me to both know my total, limited downside as soon as I place the trade, and gain extreme leverage that will make me a ton of money when the VIX finally bursts upward.
Second, the obvious play.
As a major index, the S&P 500 (SPX) will obviously go into free-fall mode when we get into a bear market.
So, much like the second part of the volatility play, I intend to use options to bet against the SPX with a known, limited downside and huge upside. But this time I’ll be using put options instead of call options.
When I buy a put option on SPX, I make money when the SPX goes down.
And with a long-term put option, I’ll give myself some time for stocks to level off before the plunge finally occurs.
Third, the steady play.
It’s a bit crazy how undervalued commodities are compared to stocks right now. I’ve just looked at the chart and find it hard to believe, actually.
And it’s worth noting here that commodities aren’t tied to the stock market like almost everything else. In fact, they have a tendency to climb when the market falls (think gold).
So, my final big profit play for the top (and 2018) is to build positions in both energy and metals.
Check out XLE (an energy sector ETF) and X (a pure metals play) and you’ll see that BOTH have already served me very well on strong breakouts out over their respective 200-day moving averages.
This is just the start, if you ask me.
I’m counting on metals and energy to remain strong through any sort of prolonged downturn, and they have had the added benefit of being a sort of alarm bell with these early breakouts!
Remember, nothing in the financial markets is guaranteed, so never trade or invest with money you can’t afford to lose.
But if you have some extra capital and an appetite for a bit of risk, these three profit plays stand to make you A LOT of money if 2018 is the home of this market top.
