Author: Smart Investing

Technical Analysis

Tastylive: How We Trade 0DTE With 90% Less Capital

Posted on by Smart Investing

Traders have flocked to zero-day, or 0DTE, trading with their options. Since these options started trading nearly two years ago, they’ve grown substantially. 0DTE trades now account for nearly half of all options trades.

Investors have plenty of strategies that they can employ with 0DTEs. Some of these strategies can be costly. But there are several tools available to allow for profitable 0DTE trading with substantially less capital involved.

One strategy is to use a strangle. A strangle involves buying and selling an option with different strike prices, but the same expiration date. In essence, the trader is looking to make a small profit. At least as long as a stock or index trades within a certain range.

A short strangle can have higher risk, but can be built at a lower cost of capital compared to directional options bets. Plus, far out-of-the-money options can avoid capital restrictions. That also allows for traders to use less capital.

Typically, a 30-delta strangle option would carry a huge cost for investors. They may need to put up over $100,000 in capital. But by using more out-of-the-money trades, investors could make a similar return while risking just 1/10th of the capital.

So, investors should look to buy cheap options and using strangle trades. That will help maximize returns and lower capital costs on 0DTE trades.

 

For the full study behind this trading strategy, click here.

Private equity

A Wealth of Common Sense: Margin of Too Much Safety

Posted on by Smart Investing

The data for 2024 is out. Most hedge funds managed to earn returns of around 15-20%. For most years, that’s a good return. But buying the stock market index would have generated returns of nearly 25%.

It’s just one more year of hedge funds generally underperforming the overall stock market. And that doesn’t even factor in costs. Hedge funds typically take 2% of assets and 20% of returns.

That fee remains much more expensive than the 0.1% fee that investors might face buying a market index fund.

With thousand of hedge funds still around today, their real issue is that these funds may be too hedged.

They simply have too much downside protection. While a hedged fund may fare better than stocks during a market meltdown, such meltdowns are rare.

Plus, many funds don’t really hedge intelligently. Some may look to short overpriced stocks and go long undervalued stocks. But overpriced stocks may be momentum and tech companies that could fare higher.

Meanwhile, most fund managers end up becoming large investors in the fund. As their wealth in the fund grows, so does their caution to protect what they do have.

Overall, hedge funds may sound like an intelligent investment for high net-worth investors. But their overreliance on safety ensures underperformance.

 

For the full details on the trouble with hedge funds, click here.

 

Stock market

Beyond The Charts : Reversion Beyond the Mean and the Search for Market Bases

Posted on by Smart Investing

While most investors and traders are focused on the stock market, the bond market tends to drive financial markets overall. That’s because the bond market represents cautious money.

And shifting trades in the bond market reflect interest rates. Interest rates are the cost of capital. With interest rates rising, it’s clear that bond holders are increasingly cautious. That could mean potential danger for stocks ahead.

Plus, the stock market tends to rise and fall much more on animal spirits. However, the bond market has fewer emotional swings. That means investors should pay attention to the bond market.

With bond yields rising, it’s time for investors to get cautious. That doesn’t mean the market rally is over, simply that the biggest part of the move has already been made.

As long as the 200-day moving average is trending higher, investors can expect risk-on conditions. That’s good for stocks, most commodities, and cryptocurrencies.

However, once markets start to level out and trade sideways, it may be a sign to get increasingly cautious. Once the 200-day moving average starts trending lower, it becomes more challenging for investors.

For now, it’s clear that there’s some caution in markets. But the trends are overall positive, even as the bond market gives an early warning.

 

To watch the full analysis, click here.  

 

Cryptocurrencies

Rajat Soni, CFA: How Much Bitcoin to Retire in 20 Years?

Posted on by Smart Investing

Since the launch of bitcoin in 2009, it has been the greatest-performing asset of all time. With those high returns come high volatility. As the crypto space matures, bitcoin has become easier to buy and hold than ever.

While bitcoin’s massive returns will likely slow in the decades ahead, it still remains a big winner. That’s because bitcoin is the only asset globally programmed with a maximum cap.

Currently, over 93% of all bitcoin that will ever exist have been mined. Today’s investors may balk at an asset trading in the six-figure range. But it likely has more upside given that it’s still in early adoption.

If bitcoin continues to outperform traditional assets, a buy today could fund a reasonable retirement in 20 years.

That’s based on several factors. An investor should first estimate their retirement needs. That includes calculating the cost of living in various cities. Then, add in a margin of safety.

For a high cost-of-living area like New York, it may take about 4 bitcoin to retire in 20 years. That assumes bitcoin averages a 20% return.

That would cost just over $400,000 today. If bitcoin averages a 30% annual return, however, it may take less than 1.5 bitcoin to fund a retirement. Investors who buy today can still get a valuable bargain in the future.

 

To see the full calculations behind retiring on bitcoin, click here.

 

Commodities

Sprott: Top 10 Themes For 2025

Posted on by Smart Investing

2025 starts off as a continuation of 2024. That bodes well for some commodities, particularly precious metals and uranium. Gold just beat out the S&P 500 in 2024, soaring about 25%. That’s the metal’s best annual performance in 14 years.

Meanwhile, the rollout of AI has led to a resurgence of demand for nuclear power. That, in turn, has pushed uranium higher. That’s another trend still in its early stages with more room to run.

Meanwhile, commodities such as copper have a murkier outlook. Copper plays well to global economic growth. But a slowing economy in China, the world’s second-largest economy, should derail copper.

However, the current imbalance between supply and demand still remains in favor of higher prices. Investors can still look to copper stocks as a potential buy during periods of weakness.

Plus, energy was a lackluster sector in 2024. But events continue to shape up in favor of traditional energy assets. One reason why is the concept of energy security.

America is largely energy independent, but has an opportunity to export significant amounts of natural gas to Europe. That could offset a potential price decline that may otherwise occur as American producers are encouraged to drill.

In this scenario, smaller energy explorers and producers could be the big winner relative to the oil majors.

 

To see the full list and details of 10 commodity themes, click here.

Income investing

Dividend Growth Investor: Three Dividend Growth Companies Increasing Dividends Last Week

Posted on by Smart Investing

Whether stocks rally or decline, they’re still fractions of a business. And over time, focusing on a company as a business can lead to massive returns. Most businesses mature and slow down after a hefty growth phase.

As that happens, cash flows shift from reinvesting in the business to rewarding the owners. That usually takes the form of dividend payments. A rare handful of companies have a history of increasing that payout over time.

The list narrows further for a ten-year period of raising payouts over time. But these companies tend to be great for long-term, patient investors. For those thinking about future cash needs decades down the line, dividend growth is optimal.

Recently, three companies raised their dividends. That includes utility firm Consolidated Edison (ED), which generates gas and electric power in the New York City area. They just raised dividends for the 51st consecutive year.

Over the past 10 years, Con Ed has raised its payouts by an average of 2.8%, about in-line with average inflation. Shares currently yield 3.5%, more than double the average dividend from the stock market index.

Another player is industrial and construction supplier Fastenal (FAST). They raised their dividend by 10.3%, and for the 26th consecutive year. Fastenal currently pays a 2.1% dividend.

Dividend growth companies may not be exciting short-term trades, but their long term track record is fantastic.

 

To see the third dividend growth play this week, click here.

Economy

QTR’s Fringe Finance: Market Right Now Is “A Story of Contrasts”

Posted on by Smart Investing

While the stock market has snapped back some weakness to start trending higher in the past week, structural problems remain.

Corporate America is excited about the incoming Trump administration. The economic focus on deregulation and keeping tax rates at their current level, or even lower, is generally bullish. However, tariffs could ignite a trade war, which could lead to another round of inflation. That’s just one contrast.

In that scenario, domestic companies like banks and other financial stocks could fare well. Ditto for smaller energy companies focused on domestic exploration.

For companies with significant global operations, the picture can be a bit murkier. That’s also true for tech companies. Many of today’s semiconductor manufacturing is done overseas. Domestic facilities are being built or retooled for advanced AI chips. But they aren’t ready yet.

And while consumer spending is strong, so is rising credit card debt and delinquencies. If consumers have to slow their spending, the economy could easily slip into a recession.

For now, we’ll know more as specific policies are released from the White House. And as companies report earnings and note on potential dangers.

In this kind of environment, investors and traders should look to scale back aggressive trading. And shouldn’t try to force a trade just for the sake of trying to score a quick profit.

 

To read the full analysis, click here.

Stock market

FX Evolution: You Won’t Believe What Retail Traders Did This Week

Posted on by Smart Investing

Markets have started the year trending higher, fueled in part by signs of moderating inflation. That’s allowed the market structure to show a better sign of strength. And it reverses the potential selloff signals that stocks were giving in the final weeks of 2024.

While the Santa Claus rally failed to materialize, stocks were up in the first 5 trading days of 2025. And are on track to end January stronger. Both moves point to an up year.

Reads such as improving breadth and moving average convergence/divergence also point to markets closing 2025 higher.

In fact, the stock market just presented a signal it last hit in 1928. It just recorded five straight days of at least 68% breadth. That means two out of three stocks moved higher. That’s a much healthier sign than a market dominated by a few large-cap tech stocks.

Of course, 1928 was the last full year of a bull market before the start of a bear market in late 1929. So traders will want to be mindful that stocks may have more upside this year, but not indefinitely into the future.

However, January’s market moves also indicate that stocks will likely be volatile. And traders and investors alike should be prepared for a correction in the 10% range. For now, the trend is back to bullish.

 

To see the full technical analysis on the market right now, click here.

 

Stock Picks

Felix & Friends: Top 6 Stocks to Buy Today

Posted on by Smart Investing

The market’s lackluster performance in the past few weeks leaves the S&P 500 down about 5% from its all-time high. While that’s making some investors nervous, buying 5% pullbacks tends to work out over time.

Plus, 5% pullbacks occur more often than 10% pullbacks. Investors would need to go back to October 2023 to find the last one. As long as the market’s long-term uptrend is intact, buying 5% pullbacks makes sense.

With that in mind, investors have plenty of stocks to buy on market pullbacks that should generate big returns.

That includes tech giants like Microsoft (MSFT). While not the biggest name in AI, Microsoft has built a product suite that allows it to be the top or second player in a variety of software spaces.

The rollout of AI will continue to benefit Microsoft, and it’s the kind of stock investors should buy during pullbacks. Microsoft is also a dividend growth play, making ideal as a long-term holding.

Another winner here is Alphabet, parent company of Google (GOOG).

Besides growing out its own AI models, Google continues to generate massive cash flows in the search space. Plus, Google is gaining ground in the cloud services space.

Shares are also fairly priced, and the stock has underperformed recently on short-term concerns.

 

To see the full list of stocks to buy now, click here.

 

 

Stock market strategies

Swordfish: Are Stupid Options Actually Genius?

Posted on by Smart Investing

There are many ways to trade. Most traders gravitate towards options. They can be used to build a position at a lower cost than buying shares of a stock. Or they can offer better returns when there’s a massive move.

Plus, options include both call and put options. So traders can inexpensively bet on a stock declining at a fraction of the cost of shorting a stock. The options market also offers a window into interesting and unusual trades.

For instance, the options market will let investors make trades with expiration dates years into the future.

For investors who predict a multi-year bull or bear market, buying long-dated options can offer massive prospective returns. Even if those trades look impractical or downright stupid now.

Currently, traders can bet five years out that the market will rally as much as another 67%. Over a five-year period, that’s certainly possible.

However, the average five-year rolling period is a bit under 70%. If the bet is correct and stocks return over 67%, the buyer of the options could make 10-60X returns, or up to 6,000%.

If the bet is wrong, it could mean a total loss. That’s the case if stocks trade lower, flat, or up less than 67% by 2029.

While buying long-dated market calls may sound like a potential big winner, the risk of loss remains high. Traders are usually better off making shorter-term trades. But sometimes, even a silly-sounding trade idea could be a big winner.

 

To watch the full options trade breakdown, click here.