An Easy Way to Make Money in This Crazy Market

Andy Snyder|July 6, 2022

Editor’s Note: Andy made a big announcement to his Alpha Money Flow subscribers on Friday. He’s adding a bear market portfolio to one of Manward’s most popular services. In it, he’ll detail his new “sniper” trades, which use a variety of techniques to make money when stocks fall. Today’s essay is a bit of a preview of what he’s up to. If you want in on these trades, give our team a call at 844.201.1980 or 443.541.4636.

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Let’s be clear…

Jay Powell and the Fed have lost their handle on the market.

The White House says there’s no recession in sight. And yet the Fed’s own real-time GDP monitor says we’re already in one.

In the simplest of terms… there’s no quick way out of this one.

We can’t print money and just stuff it into mailboxes.

That’s why it’s critical investors use every tool available to them.

Here’s a good – and simple – one.

It helps to ensure your income rises along with prices.

You see, for more than a decade now, we’ve been living in an altered state of reality. Thanks to cheap money, the economy has been given one hit of adrenaline-spiking dope after another.

But its veins have worn out. Things have ruptured.

And because of that rupture, one of the most powerful correlations in the economic world has become one of the most potent moneymaking strategies in the market.

The Ties That Bind Us

Over the last three decades, there has been an obvious tie between stock market volatility and inflation.

For example, in 2011, the annual rate of inflation spiked to 4%.

At the same time, the VIX – the standard measure of market volatility - soared to more than 40.

Prior to that, we saw a large spike in inflation in 2008, just before things melted down and the VIX soared to a high near 80 points.

Going back even further, to 1990, when inflation peaked at nearly 6.4%, we see the VIX soared once again – right on cue.

The ties are obvious. When prices rise… so does volatility.

But here’s the thing with that. It’s what makes the idea so obvious: The VIX simply measures the price of S&P 500 option contracts. So of course when prices rise, the price of insuring ourselves against big stock market moves surges higher.

And when prices surge… we don’t want to be buyers.

We want to be sellers.

Inflation Buster

That’s why a covered call strategy is an ideal way to play rising inflation. It creates an ideal income stream that should easily keep pace with rising prices.

If you’re unfamiliar with the idea, it’s pretty simple. A covered call strategy involves simply selling call options on a stock that you already own.

It generates income because you keep the proceeds derived from selling the option contract.

And as volatility rises, that income stream can grow quite large since investors are willing to pay a premium for contracts because they expect prices to fluctuate wildly. Buying call options is a way for investors to hedge their positions.

You can see it in this chart. As implied volatility rises, so do the prices of call options.

The downside, of course, is that if the underlying stock rises above the strike price of the call option, you will likely have to sell it at that price.

If that happens, you take the proceeds (often at a strong profit) and move on.

That’s a good problem to have right now.

Selling covered calls is a popular strategy amongst active investors in any market… but it’s an ideal strategy when prices are rising.

We’re convinced Powell is in over his head.

Prices are rising. And all signs say more trouble is on the way.

As it comes, put this strategy to work.

It will treat you well.