This past week saw the market go into an all-out panic.
Sports are canceled until further notice.
Schools are closing as we speak.
That vacation you were really looking forward to? Forget about it.
Online travel sites are flooded with people canceling trips, even within the U.S.
This is a crisis unlike any other we have experienced.
I know people try to compare it to other viruses or one-off events. But our whole economy is literally hitting a brick wall — it’s coming to a complete stop.
The fear-based reaction around the world is now creating a major global recession.
I don’t think the volatility is done hitting the stock market either.
But you can use these dramatic moves to buy stocks at great prices, if you have the cash — just don’t use all of it.
So, in my weekly Bank It or Tank It videos, we’ll be focusing on stocks that I’m excited about, even in the current market environment.
I’ll let you know about #BankIt stocks that you can add to your watch list and accumulate during this volatile time.
And our first one to dive into today is Shopify Inc. (NYSE: SHOP), an online commerce platform.
With consumers still thriving amidst lower interest rates and more stimuli, this web-based company will be a stock to bank on during the coronavirus panic.
Check out my latest Bank It or Tank It video below, where I dive deeper into Shopify. And I’ll tell you the best way to trade through an environment like this.
A Better Way to Buy Shopify
Shopify isn’t immune to the market’s panic selling. No stock is.
That’s why I’ve been busy navigating this turbulent environment with short-term trades. And it’s paid off nicely.
But my favorite strategy to implement when volatility is high is one that does even better in the current market environment — “sell to open” put options.
Take Shopify for example.
Prices have fallen 35% from their all-time high.
Now’s as good a time as any to look to add it to your portfolio.
But, instead of buying shares at the market price today, you can sell a put option and get paid to possibly buy shares over the next few weeks.
Here’s how it works:
Today, you can agree to buy shares of Shopify at $280 (strike price) from now till June 19, 2020 (expiration date). You’ll collect $26 per share (option price). One option contract represents 100 shares of the stock.
So, your broker would tie up $28,000. You’d collect $2,600, or 9% of the funds invested — in just three months.
That’s an annualized return of 36%!
At the end of the day, there are two outcomes possible.
If the stock stays above our $280 strike price, the position expires on June 19. You keep the income (option price) and your cash is freed up. But you don’t get to buy the stock.
The worst-case scenario is if the stock falls below $280.
Then you’d end up buying 100 shares of the stock, at $280, for every contract you sold — regardless of how low the stock is trading.
That’s why my No. 1 rule is to make sure it’s a stock you would love to own today, after the plunge in its share price.
Then, your worst-case scenario is you get paid to own a great company at the price you want — instead of the market price today.
This example is a high-priced stock, tying up $28,000 in capital for just one trade. But in my premium service, Pure Income, I keep almost all the opportunities to less than $5,000 per position. That allows most investors to place multiple trades.
My colleague Matt Badiali loved the concept so much, he put together a special presentation on what he calls 1-Minute Windfalls.
Click here to check it out now.
Chad Shoop, CMT
Editor, Pure Income
P.S. I added a poll to my Twitter page, @ChadShoopGuru, so you can vote on my next #BankItorTankIt stock. You can click here to vote and let me know what stock you want me to feature next week.