Direction Alerts Sunday Edition

[Direction Alerts] Dear Direction Alerts Reader, This is the very first issue of what will now be the Sunday Edition of Direction Alerts. The Sunday Edition will not include the typical charts and oscillators since markets are closed and there is no data to feed these indicators. Plus, we thought you might enjoy a little different angle on the markets. Each Sunday Edition will include a specific chart pattern, technical investing lesson, or otherwise important market occurrence that we believe to be relevant to the current market conditions. Today’s issue is going to discuss the incredibly low volatility and what it might mean for the month of September, which by the way, is an historically negative or [high alert crash month.] Prior to the Kansas City Fed’s long anticipated and high-profile policy symposium in Jackson Hole, Wyoming on Friday, the S&P had traded in a tight range for 33 consecutive days never moving more than 1%. Furthermore, trading volumes are at the lowest level in more than a year. Sure, it’s summer and many traders on Wall Street take the entire month of August off, but it’s even more quiet than usual. The Wall Street Journal recently reported that volatility has only been lower [a dozen times in the past half-century.] Bonds too are eerily quiet. Bloomberg Business reported that Treasury 10-year notes are stuck in their [tightest monthly trading range] in a decade. What does this near record low volatility mean for you as an investor? Maybe nothing, but long periods of low volatility are eventually followed by periods of much higher volatility. Typically a spike in volatility coincides with a market panic of some sort. For example, in June 2014 ISIS invaded Iraq and over the ensuing months the S&P 500 dropped -9.9% which sent the VIX (the market’s fear/volatility gage) from 11.33 to 31.06, an increase of 174% in a matter of weeks. Then in August of 2015, oil prices crashed sending the S&P 500 lower by -14.19% as the VIX shot up 389% in only 14 days. Just a few months later, in October of 2015, the VIX rose 150% based on fears over the slowdown in China sending shares of the S&P 500 lower by -14.59% And finally, in response to Brexit, the VIX jumped 95% in a matter of days when the Dow Jones crashed 655 points. [Direction Alerts] This chart shows each of these volatility spikes followed by a “return to normal.” Yes, in the majority of cases a spike in volatility coincides with a significant drop in the stock market. However, this is not always the case. There have been a few instances when volatility climbed in response to fear over a crash as the markets “climbed the wall of worry.” Whether the current lull in volatility leads to another significant correction or an upside breakout remains to be seen. But investors shouldn’t let their guard down and need to recognize that periods of low volatility don’t last forever. Unfortunately, most traders and investors are not prepared to take advantage of rising volatility and instead watch their portfolios plummet in response to catastrophic world events. But periods of increasing volatility aren’t just something you need to protect your savings from. They provide one of the best opportunities to create wealth with minimal risk - provided you know how to take advantage of them. The single best way to take advantage of periods of high volatility is by selling put options because it allows you to harness volatility in a way that no other investment can. When volatility spikes, option premiums become more expensive. By selling this increase in volatility (expensive premiums), you are in essence buying low and selling high, only you’re selling high first and letting the options dwindle and expire as volatility returns to normal, which always happens after a periods of high volatility. The reason we are such strong advocates of selling put option premiums on safe, undervalued blue-chip companies is because this strategy allows you to profit from the only two certainties in the market: 1) The rise and fall of volatility which we’ve just discussed, and 2) The passage of time. As an option seller you profit with each passing day as the option’s premium dwindles in value until if finally expires, which according to the CME happens 76.5% of the time. This is precisely why this strategy has such a high success rate. The odds are stacked heavily in your favor from the outset. If you then couple this high probability strategy and only sell put options on the safest blue-chip companies, at times when their share price is undervalued, you further mitigate any risk because the worst case scenario is the stock price is trading below the put option strike price on expiration and you have to buy shares in the company. But who doesn’t want to own shares in safe and undervalued blue-chip companies that pay high dividends and offer upside potential too? Not to mention you can create additional income by then selling covered calls on the same shares you were assigned from the original put sale. And when the put option expires worthless (76.5% of the time) and you are never assigned shares, you just collect the income and rinse and repeat. In fact, over the last two years, Thomas Moore, the chief editor of Rebel Income, has recommended and closed exactly [104 of 107 winning trades] selling put options. That’s a 97% winning rate and gives Thomas one of the most coveted track records in the newsletter publishing business. His picks have turned every $10,000 invested into over $18,075 compared to only $12,579 for the S&P 500. The regular annual subscription rate for Rebel Income is $1,164 per year, however, for a limited time we’ve arranged for you to follow all of Thomas’ put option income trades for the next 30 days for only $9. [Click here] to start your $9 trial (no long annoying video, I promise). 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