Harnessing Fully Limited Risk

By Adam O'Dell  |  October 24, 2018

It’s a big week for us.

Tomorrow we kick off our three-day Irrational Economic Summit and I hope you’ll either be there in person or tuned in via Live Stream, especially considering that the markets are showing cracks that Harry and our crew have been talking about for years!

Interestingly, at our conference four years ago I issued a broad sell signal based on market action at the time. I don’t know if that will happen again this year — I don’t have a crystal ball — but I do know that on Tuesday more than six stocks were down for every one that was up. That’s a clear indication of indiscriminate selling across the board.

Sentiment is fickle in the short run. That’s why I’ve instructed my Cycle 9 Alert subscribers to exit a couple positions, to manage our risk exposure.

But here’s the thing, and it’s what I’m going to be talking about at the Irrational Economic Summit on Saturday, when I take the stage at 9:40 a.m.: my Cycle 9 options strategy gives you a risk-management mechanism that’s literally impossible to achieve with ordinary stocks.

It all boils down to the investment vehicle you use.

Over the last six years, my Cycle 9 Alert system has been highly accurate. We boast a win-rate of 73%. And we’ve consistently captured big winners, while keeping losses relatively smaller.

But it’s our unique ability to fully limit risk that has helped us capture the successes we have.

The absolute best thing about our strategy is that it completely limits the amount of money we can lose on any one position. How do we do it?

By buying options!

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).

But when you buy options, your risk on any given position is completely limited.

It’s impossible to lose any more than the cost of the option contract, determined at the time of purchase.

And since I generally recommend not investing any more than small portion of your account in one option position, it’s nearly impossible to torpedo your portfolio, even when a few trades don’t go your way.

The Cost of Doing Business

Look, taking losses is an unavoidable cost of doing business. If you can’t stomach that, you’ve no business investing at all.

Remember, even with a strong win-rate of 73%, about three out of every 10 Cycle 9 Alert trades turn sour on us. And some have resulted, and will result, in full individual position losses.

But that’s perfectly fine. Because our strategy is fully designedto absorb those losses.

For starters, our potential losses on any given trade are fully capped at 100%. And second, the potential profits we can earn on any given trade are unlimited!

That’s the power of the asymmetry of risk and return!

Our risk is completely limited to one-times our original investment. But on the other hand, our return potential is unlimited, often generating profits two-times, three-times or four-times the size of the original investment.

Since we launched Cycle 9 Alert in 2011, subscribers have captured three dozen 100%-plus winners.

We’ve grabbed profits of 336% on 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.

And in July, we banked two sets of 400-plus profits!

All told, the success of Cycle 9 Alert over the last seven years comes down to the asymmetry of risk and return. Essentially, we’re exposing ourselves to small (limited) risks and positioning ourselves for large (unlimited) returns.

This is the case because of three key truths…

  • We win more often than we lose.
  • Our winners are bigger than our losers.
  • And we can never lose more than 100% on a trade when it sours… but we can rake in 100%… 200%… 300%… even 400% when we lock in on a winner.

The Trouble Is…

When most investors hear the word “options,” they run for cover.

As an investment vehicle, people fear buying options because they seem complicated or overly volatile. And there are times when options can turn on you.

But if you’re avoiding strategies because they use options to trade, you’re making a mistake.

That’s why I’m making options the focus of my presentation at the Irrational Economic Summit this week.

I hope to see you there. But if you can’t make it in person, then I hope you’ll see us via the Live Stream.


Adam O'Dell

As Chief Investment Strategist for Dent Research, Adam O’Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with minimum risk. He achieves this with his perfect blend of technical and fundamental analysis.MORE FROM AUTHOR