The following article was adapted from my Daily Tips and Insights Newsletter dated March 3, 2017. Although I make specific references to the stock market environment in the months following the 2016 U.S. Presidential election, the insights and themes are applicable to all market environments.
As of close of Market on Thursday, March 2, 2017, the S&P 500 is up 11.75%, or 37.29% on an annualized basis, since the U.S. Presidential election 115 days earlier.
In other words, since the election, the U.S. stock market has only gone one direction - up!
Here's a chart I put together to show you what I'm talking about:
Either the stock market really likes Donald Trump, or it really likes the idea of a pro-business Republican party controlling all three branches of the U.S. government.
The combination of lower prospective corporate tax rates, deregulation, renewed economic optimism, growing corporate earnings, and a still low interest rate environment can only mean one thing:
Economic prosperity is here to stay and from now on, the stock market will only continue to rally.
Obviously I'm being facetious - although there is a lot to like about the current economic environment.
I'm on record as saying that I believe we're somewhere around the 5th inning of the current secular bull market which began - depending on whether you measure by nominal lows or valuation lows - in either March of 2009 or October of 2011.
(I largely subscribe to Jeffrey Saut's - of Raymond James - views on the matter.)
If that position is correct, then we likely have several bullish years remaining before we have to start worrying about the bottom dropping out of things once again.
(And the later in a secular bull market you go, the crazier those positive returns tend to get.)
But no tailwind is permanent.
Even in secular bull markets, you can still experience counter trending cyclical bear markets - such as the crash of 1987 and the recession in the early 1990s.
The lesson is clear - never become complacent.
Selling puts since the election on just about anything has been a terrific strategy - solid returns, easy money, no drama.
Even generic put sellers are looking brilliant these days.
It's easy to make money in the stock market when nothing goes wrong, but I think we can agree that it's a mistake to assume nothing will ever go wrong from here on out.
It's a mistake to assume that developing killer trade repair skills and insights are no longer necessary.
And when it comes to the stock market, anytime you start feeling too comfortable, remember this:
Mr. Market is basically everyone else in the stock market who isn't you.
Not only does that make Mr. Market incredibly schizophrenic, but most of the voices he hears don't exactly make good business partners for you.
Yeah, that's who I want to go into business with:
>> Billionaire "activist" hedge fund operators who find ways to legally manipulate a stock's share price - revealing a new position in order to spike the stock or helping to orchestrate a short attack if they want a stock to go down
>> Rampant speculators
>> Legions of irrational amateur investors who notoriously pile in aggressively at tops and panic sell at bottoms
Relying on the kindness of strangers may have been the motto of Blanche DuBois in A Streetcar Named Desire, but if that's your approach to the stock market, it won't be long before you have your @$$ handed to you.
Maybe that serious risk is big, catastrophic losses, or maybe it's the just the frustration of squandering too much time (that you don't have) treading water as you invariably give back all your previous gains with one ill-timed trade or investment.
So how do you get a "serious and permanent edge" in the stock market?
By my count there are only two ways:
#1 - Be able to predict the future much better than everyone else (either through luck or the willingness to work a lot harder and dig a lot deeper than everyone else)
or . . .
#2 - Have a strategic advantage
I don't want to have to be smarter than everyone else, work harder than everyone else, or be luckier than everyone else.
I just want to know I'm going to win before I ever enter a trade.
And I've figured out how to do that because I rig the game at the structural or strategic level.
Except that it's not so much rigging the game as discovering an entirely different way to play it.
For years and years and years that basically meant one strategy - the put-writing based Sleep at Night High Yield Option Income Strategy which I've advocated and taught in one form or another since 2008.
(And, yes, I also have an additional training course inside The Leveraged Investing Club showing members how to replicate the Sleep at Night Strategy with covered calls rather than naked or cash-secured puts.)
In the early days I did this via a stand alone ebook; by 2012 that had grown into a private membership site that now boasts multiple online courses, premium trade research, unlimited email coaching, tons of other resources, and - get this - no recurring subscription fees and no sales pitches from me ever again.
The Sleep at Night Strategy has been the strategy that I've used in 90% of my own trades and the only strategy I've trusted managing my grade schooler's small account.
That's because - thanks to the Strategy's rigorous trade selection process and the systematic trade management system - it's extremely rare that I ever book a loss at the end of the day.
I call it "Heads I Win, Tails Mr. Market Loses."
Or as one veteran Leveraged Investing Club member wrote inside the Club when mentioning what he expected a specific stock, and the market in general, would do in the near term . . .
That's it in a nutshell.
Can I guarantee that you will never, ever book a loss selling puts if you do so the way I advocate and teach?
No - but I can get you pretty damn close.
And this really is a sincere and good faith statement:
"We make great returns when we're right and still often decent to good returns when we're wrong."
That's what a call a Strategic Advantage.
I said above that 90% of my own trades involved selling puts.
That's no longer the case as I'm now transitioning a significant part of my portfolio to a brand new customized strategy I first began brainstorming late last spring and have been actively trading since last August.
The LEAPS Perpetual Income Strategy is more involved than selling puts, to be sure, and it's not something I recommend to traders and investors who are brand new to options.
But it is a profoundly powerful strategy that's constructed and designed to safely generate high yield income in any market environment, it requires little maintenance, and for the most part we don't have to give a rat's ass where the underlying stock trades.
Take that, schizophrenic Mr. Market!
>> PYPL #1 = 17.46% annualized over 221 days
>> PYPL #2 = 64.26% annualized over 102 days
>> ESRX #1 = 161.53% annualized over 73 days
17.46% a year vs. 161.53% a year is a pretty wide spread, to be sure.
The truth - or realistic typical return - is most definitely somewhere in between.
I've written extensively about the LEAPS Perpetual Income Strategy on this site - while reserving the official and full training in the Strategy for Club Members.
To learn more about the Strategy, you can check out the 6-part article series I posted here.
Specifically, to help you determine whether the LEAPS Perpetual Income Strategy is a good fit for you, I recommend these two articles on:
I previously put together a Secret Seminar arguing that put selling can be an effective strategy even in a bear market.
My three primary points were:
>> Not everything goes down in a bear market
>> Those that do go down, don't go straight down
>> Premium levels are sky-high which can go a long way to helping you repair whatever goes amiss
But the LEAPS Perpetual Income Strategy takes things to the next level because it completely removes share price from the equation.
And that's the ultimate luxury as a trader and investor.
When we can generate high yield income regardless of share price, we transcend everything remotely connected to the business cycle - politics, fraud, greed, fear, uncertainty, and everything else that's bad about other people.
KO - 125 shares
KMI - 100 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares
Open Market Purchase Price: $20,071.83
Less Booked Option Income: $16,341.71
Tot. Discount: 81.42%
Adj. Div. Yield: 19.59%