Since its March Madness, I wanted to share with you a how a hedge fund trader like myself would bet (if it was legal) on a college basketball game. As everyone knows the biggest story of the tournament is the Cinderella story of Florida Gulf Coast University (FGCU) the brand new school and basketball team (they didnt even have a basketball gym till 1997) and their two big upsets of Georgetown (which I predicted here on this blog) and San Diego State.
Now on Friday March 29th FGCU is playing the mighty University of Florida Gators. Now on paper this looks like a blowout, UF is the biggest and best athletic school in Florida, and no one outside of Florida had ever heard of FGCU until last weekend. So it’s not surprising that the oddsmakers in Las Vegas have the UF Gators a 13 point favorite over FGCU. But what a lot of people dont know is that FGCU not only has been hot in the tournament but they also beat the top ranked University of Miami Hurricanes earlier this season. Also in college basketball especially during the NCAA tournament when everything is on the line, (you are one loss away from going home), almost all of the games are pretty close. So That 13 points spread that UF has to cover seems like a very low probability trade.
Also in sports gambling there is something called the moneyline, the moneyline tells you what the odds are for the underdog team to win the game outright without the spread. In Friday night’s game many casinos have FGCU as an 8 to 1 underdog, meaning that if you bet $100 on FGCU to win the game then you would make $800, a great trade right, but somewhat unlikely.
So here is what a smart trader would do, knowing that the odds that a team will cover 13 points in the Sweet 16 of the NCAA is very unlikely they would bet say $100 on FGCU to beat the spread against Florida, meaning that if Florida wins by 12 or less or loses the game you win $100. Its a simple bet and it pays off 1 to 1. Now you also know that there is a small chance that FGCU is the real thing, they are a very athletic well coached team who certainly doesn’t fear a school from there same state. So you would then take another $100 and bet the moneyline, betting that FGCU will upset the Gators and if they do you would get paid out an amazing 8 times your money or $800.
But as we know if the odds are 8 to 1 it means its pretty unlikely, so to hedge your bet and increase your chances of winning, a smart trader would bet $100 on FGCU to beat the Spread, and a $100 on FGCU to win outright. This would cost the bettor $220, (the $20 is the VIG). Now here are the scenarios. The most likely scenario is UF wins the game over FGCU but does not beat them by more than 12, so you would then virtually breakeven on this trade (you lose the $20 betting fee or vig). so your most likely downside zero or breakeven.
Now if FGCU pulls the upset, you then win both bets or $900, on your original $220 bet, which is a 323% return on your money. So that’s how a smart hedge fund trader would bet this game, hedge his downside risk but also have the chance for a big upside win. ( This is just a scenario, and it is not a recommendation to bet.. please remember that)
So getting back to the investing world, I see the same type of zero or low downside/huge upside trade in the $VIX Index or the $VXX ETF ($VXX).
Right now Volatility is low and probably will stay that way because we are entering a holiday period, Easter, Good Friday and Passover, so I would sell April $VIX out of the money call options and buy May VIX index $VXX call options..
Here is why the biggest enemy of options is time expiration, well the April options have a lot going against them they have a holiday on Friday, the market is closed on Friday, and many of the biggest hedge funds and institutions will not be back trading until Tuesday April 2nd, which than leaves only 14 trading days on the April $VXX out of the money calls.. Your May out of the money calls have a much better chance to make money, as they have almost 5 weeks of trading left on them. Also there is a huge contango premium from April to May built into the VXX ETF currently, the contango premium is more than 8%, meaning if you buy the $VXX ETF right now you have to make more than 8% to just break even, a hard obstacle to overcome.
To find out the exact details of this trade or to understand contango premiums in ETFs you can always email me wmeade@purealpharesearch.com
Will Meade
Editor of the Billionaires Portfolio
www.billionairesportfolio.com
wmeade@purealpharesearch.com
Carl Icahn has been making waves again this time with Dell ($DELL). Icahn is trying to get Dell to pay him or another suitor $15 a share for Dell, which is less than a 5% move from Dell’s current share price. This is great for Carl Icahn who has hundreds of millions of dollars invested in this deal, but honestly that is not the type of return most investors should be looking for in a stock.
In our premium subscription product, The Billionaires Portfolio, we piggybacked one of Carl Icahn’s Holdings, which i felt was the most undervalued and at the same time offered the best return potential of all the stocks Icahn owns, and it worked out perfectly. This stock which Icahn owns we recommended to our clients less than 2 months ago, and it is now up more than 50%. That’s a 50% return in less than 6 weeks.
Again this is what I do for every stock pick that I make in the Billionaires Portfolio, I go through hundreds of stocks that the worlds best billionaire investors and hedge funds own, and then only recommend the most undervalued stocks with the highest return potential.
Remember the most important thing I am doing is aligning myself with the world’s best Billionaire Investors and Hedge Funds, people who have made billions of dollars of real money. Carl Icahn has returned over 25% a year over last 50 years, probably the greatest track record in investing history.
Will Meade
Editor of the Billionaires Portfolio
www.billionairesportfolio.com
I predicted on this blog (see post from 3/19/2013) that Florida Gulf Coast would upset Georgetown, Iowa State would upset Notre Dame, and Mississippi would upset the Badgers. It all came true and my bracket on Yahoo sports was in the Top 1% of all brackets (over 8 million people).
I told you this wasn’t luck it was just using predictive analysis and modeling. Remember I was educated in economics and statistics at two of most prestigious universities in the World, The Johns Hopkins University and the University of Chicago.
I am telling you this because I am about to make some of the biggest and boldest predictions of anyone in the Investing World.
My quantitative and statistical models are signaling some amazing things, that will impact your portfolio in a massive way. I am talking about huge drastic moves in the stock market ($SPY), ($DIA), ($QQQ), bonds ($TLT) and commodities ($GLD) ($SLV).
If I can pick 3 of the 4 biggest upsets in the NCAA tournament with my models, including the biggest upset ever (FGCU over Georgetown) in the history of college basketball through my statistical models, imagine how powerful the signals are from my investing models, in which I have spend my entire career and education perfecting.
I promise that if you do not position your portfolio properly in the next few weeks you could lose 20% to 30% of your net worth very quickly.
All you have to do is sign up for my service The Billionaires Portfolio, and I will tell you how the world’s smartest Billionaire Investors and Hedge Funds are investing plus you also get access to my predictive quantitative models, all of this for the only $299 a quarter. Remember I charge my institutional investors over $1000 a quarter for my exclusive research.
Please for the sake of your portfolio or retiremement at least go to www.billionairesportfolio.com and sign up for our free text alerts. Its the only real time text alert service that signals you whenever a Billionaire Investor buys 5% or more of a stock. Its its completely free. www.billionairesportfolio.com
People should now understand the power of using statistical analysis in picking NCAA Brackets or in investing. As everyone knows in my top performing Billionaires Portfolio Service not only do I piggyback the world’s best Billionaire Investors and Hedge Funds, but I also use my applied economics and statistics degree from Johns Hopkins University to pick which Billionaires stock picks will go up the most.
So I am proud to say not only can I pick NCAA brackets, almost perfectly I picked 15 of the 16 games correct including Harvard but also and more importantly my Billionaires Portfolio Service has had 4 stocks go up more than 100% in less than 6 months, and we only own 18 stocks in the portfolio.
Also as everyone knows about 2 weeks ago I talked about how I shipping stocks were breaking out and the best way to play this was to buy the most leveraged, volatile shipping stock Eagle Bulk Carriers, ($EGLE), (please see my post on 3.7.2013 on this) anyways Eagle ($EGLE) is up almost 100% in 2 weeks time, it is the number one performing stock on the NYSE out of 10,000 stocks. Basically using my quantitative analysis I picked the number 1 stock that went up the most out of 10,000 possible stocks on the NYSE as Eagle Bulk Carriers ($EGLE) is up almost 100% in the last 2 weeks.
Folks this isn’t luck, you don’t pick 94% of the NCAA tournament winners and the biggest upset in the tournament, and then pick stocks that go up more than 100%, its skill not luck I promise. I work very hard for you running models and doing my statistical analysis, and when you combine this with piggybacking the world’s best Billionaire Investors and Hedge Funds stock picks its an extremely powerful and lucrative combination.
There is a very nice setup occurring in the Silver ETF ($SLV), it has formed a nice bearish triangle pattern, which usually happens after a big down move. I am looking for Silver to break down hard out of this triangle after the Fed Meeting. So the best way to play this, the way that Billionaires play this, is to use super juiced deep in the money put options. (Please see previous blog post where I explain what this means)
Why am I picking Silver here to short, first The Fed meeting always moves the Silver and Gold Markets, secondly Silver puts are extremely cheap, because ($SLV) or the Silver ETF has traded flat for the last month
Here are the Options I like, I like the April $29 Strike Put Options for $1.25, this option expires on April 4th. This literally lets you profit almost 1 for 1 with the Siver ETF, meaning the current price of the Silver ETF is $27.88, and this put option would be in the money at $27.75, only $.13 cents below the actual price of the Silver ETF, so basically you are getting a super leveraged way to short the Silver ETF.
If ($SLV) the Silver ETF breaks below the $27.60 level than it will go to $26.50 the next support level by this thursday or friday. That would give you a 100% return on your put option because you are paying a $1.25 for the put or $125 dollars and you would make $1.25 or $125 dollars on the put option if you take your profit at the $26.50 level. Not a bad return for one or two days work
Will Meade
Editor of the Billionaires Portfolio
wmeade@purealpharesearch.com
There is a neat trick I learned from a hedge fund trader, and that is Swing Trading deep in the money call options.
Here is what this means: first off swing trading means: holding a stock or an option for a time period of one week to one month. Its not day trading but its not buy and hold either, its the holding period that every Billionaire Hedge Fund Manager uses.
Secondly, deep in the money call options, are a great way to trade stocks because they give you super leverage up to 20 times for little or no cost, yet with less risk than trading options outright. Basically when you buy a deep in the money call option, you are buying the stock almost outright, a deep in the money call option is a stock replacement strategy, because the option moves almost 100% in correlation with the underlying’s stock move.
How, well there is a options term called Delta, its simply tells you at the current time how much the option will move in percentage terms versus the underlying stock, if the option has a Delta of .50 its means that the option will move 50% of the underlying stock’s move. For example an option that has a .50 delta will move 50 cents when the underlying stock moves a dollar.
Now a deep in the money option usually has a delta of .60 or above meaning that the option will move $.60 cents for every dollar move in the underlying stock. Sometimes you can even find a deep in the money call option that has a .95 delta meaning that the option and the stock move almost 100% in tandem with each other. A stock replacement strategy is when you get an option that moves $.60 to $.95 cents for every dollar move in the underlying stock.
By using deep in the money options, as a stock replacement strategy you are getting free leverage, (because to margin a stock it can cost you up to 7% an interest a year) an option has zero interest or borrowing costs.
Also a real quick caveat, never buy a option whether its a call or put, unless you know that there is going to be an event (i.e. earnings, merger, corporate announcement, or an economic release etc) because you have time decay on an option, basically the longer you hold the option, the more money you lose, since you lose a little bit of money every day when you hold an option.
So to summarize to make the perfect options trade, that will make you a 100% in a month you need the following things
1) A Swing Trade- an option that you are going to hold for a week to a month time period at most.
2) A Deep in the Money Option with a Delta above .60, so that it moves almost in tandem with the underlying stock
3) An event that is going to occur within the time period of one month or less.
4) and A Cheap Option, and this is very important, basically an option is cheap if the current volatility is below its historical volatility, this sounds confusing, but all it means is this. Is you want to find stocks that have not been volatile or have been trading flat or in a range for the last 2 or 3 months, just pull up a chart and if the stock has been dead or flat, than you know the volatility is low and the option will be cheap.
So here is a trade that I am making today, using this deep in the money option/stock replacement strategy.
I am going to buy 10 deep in the money $6 May Sprint ($S) call options for .20 cents an option, so for 10 calll options my total cost is only $200. So to summarize I am buying a call option on the stock Sprint ($S) and with a May Expiration (so I get to hold the option when Sprint announces earnings on April 22nd) and I am buying the option at the $6 strike price.
Here is why I am so excited about this trade, first off Sprint ($S) has traded flat or dead in a range for the last 3 months, so the options are cheap.
Secondly Sprint ($S) is announcing earnings on April 22, almmost a month from today, so I know there is an event that will create movement or volatility in this option.
Third for just $20 cents or $20 dollars I am controlling 100 shares of Sprint stock on one call option, or in my case I am controlling 1000 shares of Sprint stock for only $200 dollars, that is incredible leverage, since if I purchased 1000 shares of Sprint ($S) stock, it would cost me over $6000 dollars, yet I am controlling that same amount of stock for only $200, thats 30 to 1 leverage.. Awesome..
Also I think based on Spint’s earnings estimates, that Sprint could trade as high as $6.60 after they announce earnings on April 22, that means I would make almost 200% on my option trade in just 4 weeks time. Now thats what I call a Billionaires Trade.
To learn more about this secret options strategy, or what I call the super leverage stock replacement strategy, where you can make 100% in a month using deep in the money option email me at
As I showed you yesterday, Apple ($AAPL) had broken out of a downward trend channel, on a gap up day, a very bullish reversal signal, but today unfortunately Apple looks poised to go lower. One of the key things that is missing right now in Apple is Institutional Buying, there is litte or no bullish volume going into Apple whatsoever. Just take a look at the chart below and you can see that volume in Apple has completely dried up, a very bearish sign, we need to see Apple move up on strong volume, to confirm that a Bullish reversal is in place.
What this means for now? Apple is in a wait and see mode, if Apple breaks above $460 on big volume then I think the reversal is in place an Apple is a Buy, if Apple slips back below $430, you definitely want to sell it. Remember Apple is being driven by news items and rumors right now, whether its an increased dividend or an Apple Watch. So its a very hard stock to trade right now, and the smart money is waiting on the sidelines, and so should you!
There is a great trading setup that is occurring in Emerging Markets right now. As everyone knows there has been a lot of turmoil overseas with Cyprus, and many of the worlds biggest Instiutions and Hedge Funds are starting to scale back their international and emerging markets exposure because of this. Also the U.S. Dollar has been very strong, and is in the middle of a secular long term bull market, and emerging markets stocks therfore have become very unattractive because of the strong dollar.
So I am looking to short Emerging Markets Stocks, ($EEM) is the most popular emerging markets ETF, but as I told you the Billionaires secret is using leverage: so I am going to go short Emerging Markets Stocks by using the Direxion Daily 3x Short Emerging Markets ETF($EDZ). This gives me leverage at 3X or 300%. Look at the chart below, and you will see that $EDZ, the Direxion Daily 3X leveraged ETF has broken a huge 9 month trend line, and is poised to increase 30% to 50% in the next couple of months, as money starts to pour out of Emerging Market Stocks, which will eventually push this short Emerging Markets ETF much higher.
As many of you know I have a strong background in Economics and Statistics and as a side hobby I like to use my quantitative and statistical skills to predict sporting events such as the NCAA Basketball Tournament/Final Four.
In trying to predict the Final Four I used economic regression models and Monte Carlo simulations. In layman’s terms I used all of the past data from all of the teams involved in The NCAA Tournament, I then ran a series of quantitative models that told me which data points have the highest predictability, examples of data points that have high predictability are: the average age of the starting 5 for each basketball team, the teams road record and the teams free throw shooting percentage.
Then I ran all this data through a series of tests and simulations which gave me a weighting percentage for each team. The higher the team’s weighting percentage the more likely they are to win The 2013 NCAA College Basketball Tournament
So with all that being said here are the predictions from my model.
The final four: Louisville, University of Florida, Ohio State and Miami Hurricanes. The winner will be Louisville.
The teams most likely to pull a first round upset, Florida Gulf Coast University, University of Mississippi, Iowa State and Davidson.
