The market is eerily reminiscent of the 2008 financial crisis… but today, the market is more fragile than ever. Traders are buying stocks at all-time highs, and valuations are in no-mans land.
If you do the research, you’ll realize the price action today is very similar to the leadup to the crash on September 29, 2008.
Everyone was buying, thinking that housing prices would continue higher and support the market.
Little did they know the forces of supply and demand would take charge. Shortly after, the SPDR S&P 500 ETF (SPY) suffered a 40% drop in just under a month.
Right now, we’re sitting at all-time highs… and the traders who think everything is all fine and dandy in the market may be in for a rude awakening.
When everyone is as greedy as they are now… you have to think that a crash scenario is likely.
You see, these traders will not benefit from shocks in the market. Instead, they will panic when the next market crash comes… scrambling to figure out what’s going on and how they can puke their positions.
Today, I want to show you how you can be antifragile and thrive when stocks crash — and prepare you for what’s to come in 2020.
“Antifragile” is a term coined by one of the greatest options traders in history — Nassim Nicholas Taleb… simply because there isn’t an antonym for “fragile”.
Bullish traders are amongst the most susceptible to shocks in the market. Why? They don’t have strategies in place to benefit from potential crashes. Instead, they stick with the “buy the dip” mentality.
Sure, it’s worked over the last decade… but at some point, you have to think that there will come a day when this won’t work… and they’ll be holding onto their longs with knots in their stomachs.
How did the market and traders get so fragile?
The intervention of central banks.
It’s been more a decade of “easy money”, where corporations and consumers could borrow money at an extremely low rate. That was the Fed’s way to stimulate the economy in the aftermath of the previous financial crisis.
It’s the percentage of Total Public Debt in relation to Gross Domestic Product. If you look closely, right now, there is more debt than ever… and countries are struggling to pay it all back. At some point, this could bite the Fed, and they will struggle to find a solution to this massive problem.
We can implement antifragile strategies. Basically, we can benefit when volatility rises. When mathematicians talk about volatility, they think of large moves in either direction. However, in trading terms, it generally means when the market is dropping.
What Are Antifragile Strategies?
Any strategy you use that benefits from volatility, noise, shocks, failures, and faults in the market can be considered antifragile. In one word, it makes you “resilient”.
For example, those who short volatility are considered “fragile”, while those who are long volatility are considered “antifragile”.
Take a look at what happened back in February 2018. The CBOE Volatility Index ($VIX) — what traders use to measure volatility in the S&P 500 Index — was below 13… and just a few days later it spiked to a high of 46.34.
At the time, the short volatility strategy was working well… and everyone thought they could continue using it to their advantage. Little did they know, volatility could rise 300% in a heartbeat, and they’re stuck holding the bag.
Back in 2018, there was an exchange-traded note (ETN) — The VelocityShares Daily Inverse VIX Short-Term ETN (XIV) — that so many traders bought up. It was a way to easily bet against volatility.
Since it tracked the inverse of the S&P 500 VIX Short-Term Futures Index, once volatility popped… XIV plummeted, nearly losing all of its value in just one day. In the prospectus, it stated that if the ETN lost more than 80% of its value, it would cease to exist.
Well, volatility more than doubled one day… and guess what happened to those short volatility traders?
However, that wasn’t the only trader who got stuck holding the bag. Heck, the XIV debacle caused traders to lose $700M!
Have strategies in place that benefit from these drops.
This Thursday, December 19 at 12:00 PM EST, I will reveal my BRAND NEW strategy that could benefit from massive drops in stocks, ETFs and ETNs. The market is sending Smoke Signals right now… and it could no longer be ignored.