Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance
The markets have been in rally mode over the last couple weeks.
This rally has come from the tax and spending bill, which is going to pass.
There’s been talks of “oh it may not pass.”
But I believe it’s going to pass because they have the votes to pass it.
The other big question is…
What will the government do to make the bill less “unfriendly” to our current $36 trillion debt? Because if they don’t, it could send the bond market into a panic.
This isn’t to freak anyone out.
It’s just mathematics.
The truth is… you can only borrow so much money before your creditors say “sorry we’re not lending you any more money unless you pay higher interest.”
And as I’ve said before, the bond market ultimately controls the economy.
While short-term rates often get talked about more in the news – it’s the 10-year yield that’s the real boss of the market.
We’ll eventually see this all-important bond market react to Trump’s bill. It could come in weeks or months after the bill is enacted, but there will be a reaction. And if the bond market doesn’t like what it sees, then a correction could occur.
To prepare, there are plenty of ways to strengthen your portfolio to protect yourself and even make profits in the event of a correction.
One of those ways is by hedge trading.
How hedge trading works
Hedging is a strategy to limit investment risks. You can hedge an investment by trading in another that is likely to move in the opposite direction.
Using a hedge is a bit like taking out an insurance policy.
If you own a home in a flood prone area, then you can protect it from the risk of flowing by taking out flood insurance. You can’t eliminate the risk of a flood, but you can mitigate the financial losses you could incur.
A common method for hedging through put options. Puts give the holder the right, but not the obligation, to sell the underlying security at a pre-set price on or before the date it expires.
For example, if you have a $1 million portfolio and want to protect yourself against a 20% downward move in the markets, you’d have to buy $30,000 worth of puts to protect yourself.
Hedging is a key strategy we use in our live trading communities every day.
YOUR ACTION PLAN
I’ll be following the bond markets reaction to Trump’s bill closely in Catalyst Cashouts and The War Room. Yesterday during the livestream, Bryan and I also gave some potential trade ideas ahead of a possible reaction.
I also have one energy stock that Donald Trump has personally backed, and I think it’s wildly undervalued.
To unlock that stock and also get access to all our weekly livestreams, click the button below.
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