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 five 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:
“Dad, what’s the scariest animal in this water and what’s the worst thing it could do to me?”
I’ve always thought it was a funny – somewhat morbid – question from a five-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.
“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 is celebrating its five-year anniversary this month, complete with a special Seven-Figure Summit presentation).
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 with 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, at the time of purchase.
Taking losses is an unavoidable cost of doing business. Even though Cycle 9 Alert has a strong win-rate of 73%, 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!
Grocery Store Buyout
Just last Thursday, health-foods focused grocery distributor, United Natural Foods (NYSE: UNFI) agreed to buy SuperValu (NYSE: SVU) for $32.50 a share – a 67% premium over the stock’s Wednesday close of $19.45.
I had recommended a bullish position on SuperValu to my Cycle 9 Alert readers in late May, telling them about the potential takeover of a takeover deal.
And when the deal happened… we made a 428% profit overnight!
That’s what I’m talking about when I say we’re using the “asymmetry of risk and return” to our advantage.
When we buy call options, as we did on SVU, 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!
Our most recent windfall profit was a big one! But it’s not the only one we’ve captured with my Cycle 9 Alert system.
And over the past five-plus years, we’ve captured a number of profits well over 100%.
We’ve made gains of 407% on a Consumer Discretionary sector ETF… 344% on a Canadian dollar ETF… 336% on shares of Pan American Silver Corp… 316% on a volatility ETF… 201% on U.S. Steel… 197% on Rockwell Automation… 191% on Royal Dutch Shell… 140% on Titan Machinery… and 125% on Merck & Co., just to name a few.
All told, the success of Cycle 9 Alert over the last six 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) returns.
Who can argue with the logic in that, right?!
In just a couple weeks, I’ll be sharing a special presentation in celebration of Cycle 9 Alert’s five-year anniversary.
We’re calling it the “Seven-Figure Summit” and I can’t wait to share it with you!
More on that soon…