Options Pros Talk Put-Call Parity and More This rebroadcast of OICs webinar panel on Put-Call Parity...
Investing with Power Trends
03/10/2014 10:00 am EST
To isolate winning investments, Chris Versace looks for enduring, powerful trends in investor psychology, demographics, and economics. Here, he explains his strategy, his new Power Options Trader newsletter, and some favorite defensive stocks.
Steve Halpern: Joining us today is Chris Versace, editor of three newsletters; Power Trend, Power Trader, and the just-launched Power Options Trader. How are you doing today, Chris?
Chris Versace: I'm doing great, Steve, despite a lot of winter weather. Thank you.
Steve Halpern: Now, a primary trend in your investing and trading strategies are what you call Power Trends, which you use to identify important shifts in consumer behavior. Could you expand on this for our listeners?
Chris Versace: Sure, Steve. You know, over the 20 years that I've been in and around Wall Street and working with investments, I've noticed that some of the more powerful and pronounced shifts tend to happen when we look at the intersection of what's going on in the economy, what's going on from a demographic perspective, what's going on from a psychographic perspective.
By that, I mean, where are consumers spending, what are enterprises and other businesses spending on, and lastly, an overlay of technology, and sprinkling across a number of political regulatory happenings and things like that.
So, we tend to see a lot of structural shifts and, you know, that change the consumer, how the consumer is doing what they're doing, what they're buying and so forth, as well as businesses, and the power trends try to hone in on these changes to find the companies that are best positioned to prosper.
Steve Halpern: Now, in the past, your Power Trend and Power Trader newsletter focused on stocks and ETFs, but, as we mentioned, you've just launched a new product called Power Options Trader. Could you tell us a little about the goals with the new service?
Chris Versace: Sure, well, it's no secret that the average investor is looking for more ways to use options, really, to get that extra bang for your buck. You know, personally, I like the use of options because, for modest amounts of capital, you can get high double-digit, even triple-digit returns.
And that's really what we're after with power options is taking, you know, as I joke, Steve, the power of power trends, and that way to invest, mixed with the power of options, to give significant returns, and, so far, we're on our way.
Steve Halpern: Now, what type of risk profile or time horizon should somebody who wants to follow your advice in power options have?
Chris Versace: Sure, well, you know, by the nature of the fact that we're using options, this is going to be a higher risk, more volatile trading service.
That means, you've got to have the risk profile, the stomach, if you will, Steve, for ups and downs and, you know, as much as I'd like to say every trade will be a triple-digit winner, there will be some that won't work out. That's the nature of the beast.
As far as the time horizon, we tend to be, again, because we're using options, more four-to-eight weeks. We have had very good success with options in Power Trader with that. We have had, you know, a lot of triple-digit returns, and we're looking to replicate that here.|pagebreak|
Steve Halpern: So, let's discuss some specific recommendations that will help our listeners understand how you employ these power trends in your power option service. Now, you suggested the market is poised to move back into more defensive names, and one you've highlighted is Coca-Cola (KO). Could you walk us through your reasoning on that?
Chris Versace: Oh, happy to, Steve. So, when we take a step back and we look at the economy year-to-date, obviously, we've been severely impacted by a growing number of harsh winter storms.
We've seen, you know, weak housing starts numbers, we've seen weak factory order numbers, we've seen weak, very weak job creation numbers with little wage growth, and we're also starting to see the number of companies pass along price increases, which, to me, says yes, we might see some inflation down the road.
But more likely than not—whether or not the government actually reports it—the consumer is going to feel their dollars going less far, so that tells me the cash-strapped consumer is here and people will continue to buy what they need, maybe not what they want.
At the same time, though, we're seeing very robust growth outside the US in a number of the emerging markets.
And when I put that all together, Steve, I see, wow, Coca-Cola shares have fallen year-to-date, the company has a significant buyback, they bumped up their dividend yet again—they are a dividend dynamo—and we're seeing a number of positives in the underlying business.
So, when we put all that together, it's very easy for me to get behind Coca-Cola and say, wow, we have significant upside over the coming weeks and months, very little downside, and, at the end of it all, they continue to ratchet up their dividend, as I said, and that provides a nice floor in the stock and really gives us significant upside.
Steve Halpern: Now, to touch on one other, you're also recommending General Motors (GM). Could you tell us how that fits in with your overall strategy?
Chris Versace: Sure. Very similar to Coca-Cola, we saw GM really pullback the first four-to-six weeks of the year, but, when you step back and you look at what's going on in the US auto industry, you realize that there is a large pain point ahead of us.
By that, I mean, the fact that the average age of the car on the roads today in the US is over eleven years old, so there will be strong replacement demand, no doubt about it.
Interest rates are still low, auto loans are still affordable, and, at the same time, we're seeing far more fuel efficient cars come onto the market and I think that will pull forward that replacement demand.
But remember also, Steve, that this GM is not, as they say, “your daddy's GM.” Coming out of bankruptcy, we've seen real changes to the cost structure, and I think we'll see that flow through to the bottom line as volume continues to improve.
Steve Halpern: Well, congratulations on the launch of the new Power Options Trader, and thank you for joining us today.
Chris Versace: Thank you, Steve.
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