Protect Yourself From a Market Downturn

Written By Alexander Boulden

Posted March 20, 2024

As an active investor, I get asked all the time how to still make money even when the overall market isn’t trending in a bullish direction.

I’m here to tell you it’s definitely possible, and your returns can be even bigger than what you can make by just buying low and selling high.

I’ll show you three strategies today to leverage your positions in case the market flops.

Ignore the Noise

First, you need to block out the noise.

What do I mean by that?

Well, when the mainstream media post their weekly fluff, it’s already old hat, and you know we’ve likely already covered it in these pages.

Remember the summer of 2022, when stocks were posting weekly and monthly losses? These volatile movements were chalked up by the MSM as “recession fears.”

But anyone living in the real world already knew the recession had come and gone. You can’t just change the definition of something factual like a recession and expect it to be true.

That’s why you need to take every mainstream media headline you see with a grain of salt.

Play Small Ball

This week, as the market is posting a third weekly loss, here’s how I’m playing it…

I’m focusing on the fundamentals so I don’t take a huge hit.

I like to refer to this as playing “small ball” with your investments.

What do I mean by small ball?

Well, there’s a phenomenon in baseball where even an outclassed team can win if they stick to the fundamentals and execute them properly: fielding ground balls, turning routine double plays, hitting base hits, and advancing runners. Small ball creates a domino effect that can lead to huge game-winning rallies and epic comebacks.

To make sure you’re playing small ball in your investments, first, implement a dollar-cost averaging strategy. That’s when you slowly build up equity in stocks. Don’t just throw all your money into a stock at one time. This gives you a chance to lower your cost basis if the market reverses.

Use Leverage

You can produce outsized gains in a down market using leverage.

Take the CBOE Volatility Index (VIX), for example.

The VIX is a measure of market expectations of near-term volatility conveyed by S&P 500 stock option prices. It is commonly referred to as the “fear gauge” or “fear index” because it tends to increase when market uncertainty and fear are high and decrease when investor confidence is strong.

The VIX uses options on the S&P 500 Index. Specifically, it selects a range of call and put options that are near the current index level and that expire within a certain time frame, usually within 30 days.

The VIX is quoted in percentage points and represents the expected annualized change in the S&P 500 Index over the next 30 days, based on option prices. For example, a VIX value of 20 implies an expected annualized change of 20% over the next 30 days, up or down, in the S&P 500.

Traders and investors use the VIX as a tool to gauge market sentiment and risk. High VIX values suggest increased market volatility and uncertainty, which may indicate potential downturns in the stock market. Conversely, low VIX values suggest reduced volatility and greater market stability.

Overall, the CBOE Volatility Index provides market participants with valuable insights into investor sentiment and expectations regarding future market volatility, which can inform their trading and investment decisions.

Now, you can buy the VIX itself or play inverse-leveraged exchange-traded funds (ETFs) to track the VIX. In my brokerage, it’s the ProShares VIX Short-Term Futures ETF (VIXY). You can even play options on the VIX through this ETF.

I’ve been playing around with buying calls on the VIXY by waking up, grabbing my coffee, and checking the futures. If the market’s down, I might buy a few call options on the VIXY. A small move in the underlying ETF can produce truly outsized returns. When I did this last year, I bagged nearly 200% using this strategy in just the last two weeks.

That’s small ball for you.

And to make sure you’re not constantly in a bullish stance, make sure to find some inverse-leveraged ETFs on popular stocks like Nvidia and Tesla.

Let’s say you bought Nvidia at the top and are kicking yourself now because it’s been selling off.

Well, you can protect yourself by buying the T-Rex 2X Inverse Nvidia Daily Target ETF (NVDQ), which moves at 2 times the inverse of Nvidia.

So if Nvidia goes down, this goes up.

nvda

It’s a wonderful way to play both sides of the coin.

And as Nvidia continues to correct, there’s another stock you need to take a look at.

My colleague Keith Kohl just uncovered the most unlikely winner of this AI gold rush…

And it’s NOT ChatGPT, Apple, Microsoft, Meta, or even Nvidia.

Heck, it’s not even based in Silicon Valley. Instead, it’s hidden in a small suburban town outside of Chicago.

And this AI firm isn’t just working with big tech giants; it’s the backbone of their operations.

Apple, Amazon, Samsung — they are all already partnering up with this under-the-radar firm.

Why? Because its tech is integral to the explosive growth we’re seeing in AI tech.

This firm’s stock is trading at around $18 a share today…

But based on Keith’s analysis, we could be looking at potential returns as high as 12,284%!

You can instantly access all the details right here.

Stay frosty,

Alexander Boulden
Editor, Wealth Daily

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After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing.

Alexander is the investment director of Insider Stakeout — a weekly investment advisory service dedicated to tracking the smartest money on the planet so that his readers can achieve life-altering, market-beating returns. He also serves at the managing editor for R.I.C.H. Report, a comprehensive service that uses the highest-quality investment research and strategies that guides its members in growing their wealth on top of preserving it.

Check out his editor’s page here.

Want to hear more from Alexander? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 

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