In today’s Issue:

  • Are we in for a crash or a boom?
  • The true definition of risk
  • Why now is the best time to sell options

The stock market is about to boom…or crash. I can think of all sorts of reasons why…

Valuations are dangerously high. Which means investors are overpaying for their claim on future profits. In the past, these nosebleed level valuations preceded a crash every time.

But Trump is about to commandeer the Fed. And we all know what happens when political and monetary forces unite. You get a spectacular boom. Usually in the form of a housing bubble. Which the US could really use right now, with the housing market in the doldrums.

So, we’re in for a boom after all!

But the market is dangerously reliant on the AI boom already. Can that really continue to lead the market higher?

Electricity shortages are strangling data centre investment already. Chip makers are desperately trying to compete with Nvidia. Will AI even be profitable? Couldn’t the Chinese undercut us again?

It sounds like a crash to me…

But robotics is about to resolve the productivity crisis. It’ll make us wealthier, allow us to pay off our debts, squeeze labour into higher earning jobs and trigger a profits boom for corporates as they boost output and cut costs.

Let the robotics bull market begin!

But European governments are on the verge of IMF bailouts. Politics has gone utterly haywire around the world. And our geopolitical enemies are taking advantage of it.

Markets simply must crash with this much political risk at play.

I can go on and on and on with reasons pointing either way. Boom or bust? It’s like a good old bull vs bear fight in Southwark 400 years ago.

But what should investors who don’t want to churn their entire portfolio each day do in such a bipolar market?

Actually, there is a way to profit from this uncertainty itself. It should become remarkably profitable while the bulls and bears rage. Especially if both turn out to be wrong.

Step one is to understand…

The true definition of risk

The first class in a finance degree features an absolutely crucial insight few people understand. Risk is not the probability of a loss. It is uncertainty, as measured by volatility.

This is true for a simple reason. In financial markets, it’s theoretically just as easy to bet on a price rising as falling.

This is less true of the stock market, which is where most people’s investment journey begins. But stocks are only a small part of financial markets.

The point is that the universal definition of risk cannot be dependent on the direction in which prices travel. Risk can’t just be the probability of a price going down. Otherwise only one side of each transaction would have risk.

True risk is uncertainty. It is a measure of how far and fast a price is likely to move in either direction. We call this volatility.

A blue chip stock that typically goes up or down less than 1% in a day is less risky than a small cap stock that typically goes up or down 5% in a day.

The blue chip is not less risky because it is more likely to go up. It is less risky because of how fast and far it is likely to move in either direction.

Armed with this definition of risk, it’s time to ask…

How to profit from uncertainty itself

As a general rule, riskier investments are worth less. People don’t like volatility. All else equal, you’d rather have a steady price.

But there is one glaring exception to this: options.

The value of an option goes up when volatility rises. That’s because it is more likely to be paid out. Find out why here.

The point is that options investors benefit from high expected volatility.

And that’s precisely what the next few months of market action are shaping up to provide. All sorts of reasons why stocks might soar, or crash.

Especially good news is when actual volatility comes in far lower than expected volatility. Then an option seller got a cash payment priced for high volatility, but their payouts will have been lower than anticipated.

Which brings me back to the bipolar market.

What if the bull and bear kill each other off? Or fight to a standstill?

What if nobody wins?

What if volatility is far lower than expected and the market goes sideways?

Then options sellers win. Here’s how to become one of them.

It’s a dream scenario for options sellers because they will be getting paid high premiums by bulls and bears who are convinced the market will move up or down. But when the market doesn’t go anywhere fast, the option payouts will be lower than expected.

What makes me think markets will disappoint the bulls and the bears?

The muddle through scenario

Financial markets are full of people predicting either a meltup or a meltdown.

Usually, both sides are wrong, and we just muddle along.

That was the big prediction of newsletter publisher John Mauldin more than a decade ago. He was entirely aware of all the reasons to predict financial and economic disaster. But was a big believer in technology too.

Mauldin believed the bullish and bearish narratives would essentially cancel each other out.

He argued that any crash would be offset by government and central bank action. But true booms were unlikely to eventuate as government and central bank influence undermined the economy’s productivity.

The “muddle-through” thesis sounds a bit boring. But it’s a spectacular recipe for success for options sellers.

So, now is the time to become one. And we’ve put together your pathway to do just that.

Until next time,


Nick Hubble
Editor at Large

P.S. Boom or bust? Doesn’t matter. In this market, the smartest move is to stop picking sides and start profiting from the chaos itself. That’s the thinking behind a new income strategy we’re about to unveil — built for the volatile months ahead. We’re not opening access just yet… but if you want to be among the first to see how it works, click here.