The Top 3 Trading Strategies For 2021

Dear Reader,

No one on this planet knows what direction this market’s going to go tomorrow, where the bottom will be, or how long this is going to last. This uncertainty will fuel fear and volatility.

We’re only a few weeks in and we’re already approaching a record. This is the biggest fear spike that I have seen in my entire investing career. I wrote about it recently when I referred to it as the “Greed Factor.” 

The way to win and protect your assets in any market is to learn and truly understand the vocabulary of the fundamental and technical investor, especially in paper assets. It is easy to do if you will invest a little time. 

Just as a banker will ask to see your financial statement before giving you a loan (which is fundamental) and require you to have property, title, and mortgage insurance on a real estate investment (which is to insure the technical or catastrophic risk), you too should require the same of yourself if you want to invest in paper assets. The way you do that is to begin understanding the words of insurance when investing in paper assets. 

A few of these words are:

  1. Trends
  2. Moving averages
  3. Stop orders
  4. Call options
  5. Put options
  6. Straddles or collars
  7. Shorts

The average investor may have heard some of these terms but probably does not understand them or has never used them. Many average investors simply discount these very important words by saying, “It’s too risky.” Saying something is risky may also be saying, “I’m just too lazy to study the subject.”

If you want to retain your wealth in paper assets, you must know how to insure your paper assets against market crashes.

I’ve asked Andy Tanner, my Rich Dad Advisor on stocks, to explain his top 3 trading strategies below. Please note, this is not investment advice, and if you want to practice any of these strategies, you must first get educated.

Andy Tanner’s Top 3 Trading Strategies

#1  Cash-covered put

It’s quite common that investors can get a 2 to 3 percent return on their money for selling one-month put options. 

For example, if you have $50,000 sitting in a bank account, you would be fortunate to earn much interest these days. By holding your money in cash, your main risk is that the value of your cash will go down. 

However, if you’re willing to convert that $50,000 into silver (SLV shares) at a set price, then you could receive a premium of say $1,000 for a put option. That’s a 2 percent return in a month, and your main risk is that the price of silver will go down. 

I want to reiterate that I’m not suggesting people go out and buy silver or gold. Your financial statement is probably different than mine, and your goals, age, and tolerance for risk might be different. You might have more or less financial education than I do as well. 

When it comes to collecting premiums, the essence of the lesson on covered calls and cash covered puts is you can get paid to buy the things you want to buy, and you can get paid to sell the things you want to sell.

Collecting premiums from selling calls or puts is a primary way to generate income using time decay. As you continue along the Education Continuum, you will discover that there are many ways to position yourself to collect premiums from selling options in the stock market.

The important thing here is to realize that you don’t have to be Warren Buffett to take advantage of strategies that allow you to collect premiums for cash flow. You can use the same strategies he uses because the same educational opportunities are open to you.

#2  Buy a put option

The put option contract gives us leverage to protect ourselves or take advantage of downward moving stocks. 

Let’s say the sophisticated investor buys a put option for $1 per share for the right to sell her shares at $50 per share. The put would cost her $100, or $1 per share for 100 shares. The market goes down as more sellers enter the market and the price of the stock drops to $40 per share. The sophisticated investor is happy because she has just protected her position at the share price of $50. What she continues to lose in the long stock position as the shares drop under $50 she recaptures in the increasing value of the put. The investor without a put loses dollar for dollar as the share price drops. The hedged investor is really flat. The loss on the stock has been recaptured with a gain in the put.

How does the sophisticated investor make money with a put when the average investor lost? 

The sophisticated investor could exercise her put, or right to sell 100 shares at $50 per share, and receive $5,000. If she chooses, she could then go to the market and buy 100 shares at $40 a share for $4,000. The net result is, she has her 100 shares of stock and an extra $900 ($1,000 less the cost of the put). 

Buying a put option is straightforward and the loss is limited to the premium you’ve paid. 

#3  Credit spread

A credit spread option is an options contract that includes the purchase of one option and the sale of a second similar option with a different strike price. Effectively, by exchanging two options of the same class and expiration, this strategy transfers credit risk from one party to another.

Credit spread options come in the form of both calls and puts, allowing both long and short credit positions.

Once you know the basics of call and put options, you are ready to begin exploring how you can use these investment tools to generate a steady cash flow. 

A Winner’s Strategy

The average person who avoids losing and expects to win 100 percent of the time is the person who often has the loser’s strategy. Expecting to win 100 percent of the time and never failing is a loser’s reality. As rich dad said, “A winning strategy must include losing.” 

Most people today have a retirement plan that does not include the possibility of losing. Most people today simply expect the stock market to always go up, and that when they retire, their nest egg will last them as long as they live. That is a plan that has no room for losing, and that is why it is a loser’s plan. Winners know that losing should be a part of any plan

Market crashes make the rich richer and the poor and middle class poorer. Andy is a member of my team because you need to know how to make money when markets are going up and, especially, when markets are going down.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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