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How To Make Your Portfolio “Bulletproof”

When the market throws you a curveball (or two, or three), like it has over the last few weeks, it can be very hard to find winning trades.

Some investors try to “time” the market, buying or selling at levels of support and resistance, trying to hop on a trend reversal.

Some traders will look for breakouts, waiting for the indexes to blow past key price points. Only then will they search for trades heading in the same direction as the general market.

And since October (maybe even January) of last year, we’ve gotten mixed signals thanks to the ongoing trade war drama. Breakout seeking investors got burned, and only traders sitting on bearish trend reversals got paid – temporarily, at least, until the market swung back to the top.

Right before falling again on an ill-timed Trump tweet.

When it’s hard to discern the market’s short-term trend, like it has been for quite a while now, there’s one “tool” that every trader can lean on.

It’s something that allows your investments to remain in balance, even in the roughest of conditions.

What I’m talking about is maintaining a delta neutral portfolio, meaning that ideally, your open positions would be split equally between both long and short trades.

The goal here isn’t necessarily to bring your portfolio’s delta (a ratio comparing the change in price of an asset) to 0, which would result in 0 change in portfolio value regardless of what the market does, but to try and “load up” on trades targeting trends both up and down.

Eventually, the winning trades will distance themselves from the losers, and the ones that aren’t working out so well could be closed for small losses.

The winners, however, would be allowed to run their course. The end result is a net gain in most cases, while still having a portfolio nimble enough to go whichever way the market moves.

That’s why in these trying times, I’ve brought to you two different trade opportunities.

One long, one short.

First, we’ll start with a stock that looks intent on dropping further, especially in the light of recent news.

Headlines made the rounds last week that energy drinks, a staple in gas stations spanning the globe, could cause heart problems as a result of long-term consumption. Monster Beverage Company (NASDAQ: MNST), maker of Monster Energy Drink, saw its stock drop in the days that followed.

But compared to weeks prior, MNST really didn’t suffer a huge plunge. At least, not yet.

After setting what looks like a lower high in May, MNST could be ready to crater. And normally, I would take a stock like this short once it exceeded the low of last week by 0.50%.

But because the thin blue line in the chart above (the 50-day moving average) is trending upwards, I need more evidence that MNST is about to fall. That’s why instead of using last week’s low as my “trigger point”, I’ll be looking for MNST to drop below the lowest weekly low of the last 4 weeks.

Which in this case, is $60.74. 0.50% below that price is $60.44, and if MNST crosses that threshold, I’m going short via a put option with sufficient open interest.

And though this trade looks like a certified winner in the making, I still want to find one on the long side to maintain a delta neutral portfolio like we just talked about.

In my next article, coming to you tomorrow, we’ll dive into our other trade – one that seeks to capitalize on a pest control company’s prime “rally ready” positioning.

Stay tuned.

Michael James
Michael James has been an avid cryptocurrency trader since the very first Bitcoin was minted. With a background in technical analysis and long-term cycles, he's helped thousands of investors navigate the digital currency markets.


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