My wife is generally a play-it-safe type of person. I am, too. But she’s also a worrier.
One of my favorite stories she tells is of when she was around 5 years old. Her parents took her on vacation to the beach, but before she’d agree to get close to the water (even safely atop her dad’s shoulders) she asked:
M&M Chief Investment Strategist Adam O’Dell
“Dad, what’s the scariest animal in this water and what’s the worst thing it could do to me?”
I’ve always thought that a funny, somewhat morbid, question from a 5 year old. But a wise one, nonetheless.
Given my wife’s innate risk-aversion, you might imagine how our conversation went when she curiously asked me about stock options once.
“What happens if you’re wrong,” she asked.
“I’ll lose money,” I replied.
“How much?”
“Potentially all of it,” I admitted.
And that’s about where our conversation ended.
Of course, there’s more to this story. And today I want to walk you through one of the most important concepts in investing — particularly the type of investing we do in my Cycle 9 Alert service, which I’ve been running since 2012. The concept is the asymmetry of risk and return.
In short, I’ll show you exactly how we make money year after year with Cycle 9 Alert… despite the possibility that we may well “lose it all” whenever we buy an option contract. You see, the absolute best thing about our option buying strategy is that it completely limits the amount of money you can lose on any one position.
You CANNOT get that level of risk-protection buying stocks. If your portfolio is fully invested in stocks, you could lose a full 100% of your entire portfolio (or more, if you’re buying on margin).
You CANNOT get that level of protection when you sell options. With option-selling strategies… your risk is completely UNLIMITED. You can lose everything in your account AND MORE. Seriously, your broker could call and demand that you send them more money than you have!
But in Cycle 9 Alert, we only BUY option contracts. Our risk on any given position is completely limited. It’s impossible to lose any more than the cost of the option contract, which we know at the time of purchase.
This is important because taking losses is an unavoidable cost of doing business. Even though Cycle 9 Alert has a strong win-rate of around 70%, about three out of every 10 trades we make will go sour on us. And some of them have resulted, and will result, in full individual position losses.
But that’s perfectly fine. Our strategy is fully designed to absorb all losses, including those.
Because, while our potential losses on any given trade are fully capped at 100%… the potential profits we can earn on any given trade are unlimited!
Consider just a few of our recent Cycle 9 Alert trades …
Cycle 9 Alert: Profiting from the Asymmetry of Risk and Return
During the COVID-19 crash, we ended up taking a loss on a long position we’d been holding in Coca-Cola FEMSA (NYSE: KOF), the distributor of Coca-Cola products in Mexico.
That loss amounted to 96% of the $510 we’d paid for the contract when we bought it in early February.
But soon after, we more than made up for that near-total loss with larger profits on other trades…
We netted a 116% profit on a gold-mining stock, which we’d also bought just before the crisis struck.
We also raked in a 103% profit on a DNA-sequencing stock — in just 16 days, to boot!
And while those two winning trades were for greater than 100%, and indeed enough to make up for our loss on Coca-Cola FEMSA, they weren’t even as big as many of our historical winners.
You see, when we buy options, our potential losses are completely limited — to 100%. But our potential profits are completely unlimited — and fully capable of reaching 200%… 300%… 400%… and greater!
Over the past eight years with Cycle 9 Alert, we’ve captured dozens of profits well over 100%.
We’ve made gains of…
- 125% on Merck & Co.
- 140% on Titan Machinery…
- 191% on Royal Dutch Shell…
- 197% on Rockwell Automation…
- 201% on U.S. Steel…
- 316% on a volatility ETF…
- 336% on shares of Pan American Silver Corp…
- 344% on a Canadian dollar ETF…
- 407% on a Consumer Discretionary sector ETF…
- 430% on grocery distributor’s stock…
And that’s just to name a few…
All told, the success of Cycle 9 Alert over the last eight years comes down to the asymmetry of risk and reward. Essentially, we’ve exposing ourselves to small (limited) risks and positioning ourselves for large (unlimited) profits.
If that approach makes a lot of sense to you, click here to learn more about the service.
To good profits,
Adam O’Dell
Chief Investment Strategist, Money & Markets
• Using his unique blend of technical and quantitative analysis, Adam’s sole focus is to find and bring you investment opportunities that return the maximum profit with minimum risk.
