Larry’s Note: Smaller gains like 10% or 20% won’t make you rich overnight…
But if you can collect ongoing income from the swings that we are repeatedly seeing in the stock market today, you can make a significant difference in your account.
Most people are missing out on these opportunities because they think they are too small to make any real money from. But that’s a mistake…
Tonight at 8 p.m. ET, I’ll reveal how this increased volatility can put you on the path to financial freedom, regardless of what happens next in the stock market.
To get on the attendee list, simply go right here to RSVP with one click.
Massive investments in artificial intelligence (AI) are disrupting nearly everything AI touches.
Main Street is cutting back on hiring as AI displaces workers. Wall Street is raking in billions in trading profits as AI-powered algorithms take advantage of market volatility.
Electricity prices are going through the roof as the massive data center expansion strains the nation’s energy grid. Commodities like copper and silver are soaring as AI-linked demand creates supply deficits.
Everywhere you look, AI’s transformation is creeping into your everyday life.
It’s finding more ways to impact your portfolio as well.
For investors, it’s exciting due to the quick gains in a select few companies leveraged to the AI trade.
But it is also troubling. Bubble-like behavior is showing up in several markets… not just stocks.
And now the smart money is moving to protect itself from the worst-case scenario…
The massive sums behind the AI transformation are fueling a bubble.
The top 10 stocks in the S&P 500 are near a record 40% of the index. The Invesco QQQ Trust, Series 1 (QQQ), which tracks the Nasdaq-100, is even more drastic, with the top 10 comprising 50% of the fund.
The biggest names are all the familiar companies behind the AI trade, including Nvidia (NVDA), Microsoft (MSFT), and Google-parent Alphabet (GOOG).
Surging share prices are boosting valuations. And the size of the stock market relative to the size of the economy is at the highest level ever seen.
But it’s not just the stock market seeing excesses. Debt issuance is happening at record levels.
For instance, global technology companies issued record amounts of debt last year to fund spending… amounting to $428 billion in new bonds just last year.
And there’s more on the way. One estimate points to $3 trillion needed to support AI infrastructure just through 2028. More than half of that amount will come from external financing including more debt.
Debt issuance is ramping up more quickly than earnings, which means that leverage ratios are on the rise.
And that’s triggering a response that should be on retail investors’ radar. As the AI bubble leads to more debt, the smart money is buying protection.
A credit default swap (CDS) works like buying insurance. You pay a premium in exchange for a payout if something bad happens, like a car accident triggering a claim on your auto insurer.
With a CDS, investors pay a premium in exchange for a payout if a debt issuer defaults on its bonds.
Directly buying insurance against bond default is only accessible to the “smart money” – institutional investors, hedge funds, and other major market players. It’s the same vehicle that savvy investors used to profit from the housing market’s collapse in 2008.
Trading in CDS products linked to the AI companies that are issuing debt is now jumping higher. In December, weekly trading volumes in AI-linked CDS products hit $8 billion. That’s a 90% increase from just three months ago. The smart money is rapidly increasing its positions to profit from an AI-debt default.
An AI-fueled collapse could wreak havoc on stock and bond portfolios alike, which is why a new approach is needed to cut risk in your portfolio.
As a trader, I prefer the “defined risk” feature provided by options.
When you buy an option, the premium paid for that option is the most you stand to lose. Since a standard option contract gives you control over 100 shares of a given stock or ETF, you get leverage while putting relatively little capital at risk.
For example, an Nvidia (NVDA) at-the-money call option (meaning the exercise price is near the current stock price) that expires on April 17 would currently set you back $1,700 per contract. That may seem hefty. But buying 100 shares of NVDA outright would cost you over $18,000.
With risks in the market growing all around, options are a great way to get exposure while limiting the capital you’re putting at risk.
The other advantage of options is that you can profit on the downside as well as the upside. You may not be able to get access to CDS products like the big institutions. But put options typically gain in value when a stock price declines. That makes them an excellent option for profiting from a potential downside move.
And with the AI-fueled bubble spreading to various corners of the market, there’s never been a better time to define your capital at risk.
So please take time now to make sure you’re comfortable with your current exposure to the AI trend…
And don’t forget. Tonight at 8 p.m. ET. I’ll show you how I’m taking this AI volatility and turning it into an income stream… You can add your name to the list automatically right here.
Happy Trading,
Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
