If investing were a mixed martial arts cage match, one name would undoubtedly reign as the undisputed heavyweight champion – Tina Fomo.
Tina, known for effortlessly captivating her followers and making them feel special, holds a unique gift for violence that often goes unnoticed. She crushes anyone who dares to stand in her way, regardless of their intellect or expertise.
In 2023, faith-based investors who succumbed to the fear of missing out on future stock rallies found themselves ending the year with significantly higher portfolios. It appears that in this particular year, overthinking and deep analysis did not fare as well as simply riding the wave.
Throughout the year, the stock market faced numerous risks, including the potential economic downturn sparked by rising interest rates, fears of escalating conflicts in Europe and the Middle East leading to World War III, and concerns about the overreliance on top technology stocks. However, Tina Fomo’s devotees disregarded a recent terrorist threat to crucial Middle East oil-supply routes as a trivial event.
Despite these risks, the S&P 500 index has experienced a remarkable 25% growth throughout the year. The Cboe Volatility Index, or VIX, has dropped by a staggering 42%, reaching historic lows. These indicators suggest that investors are not particularly concerned about an imminent stock market decline. Moreover, Wall Street’s market strategists are increasingly issuing bullish outlooks for 2024.
Considering all these weighty facts, many investors who have been relatively safe within bonds yielding around 5% are now contemplating whether they should also heed Tina Fomo’s call. After all, gains are undeniable realities, while risks only become apparent when they materialize – bringing to mind a memorable insight from Mike Tyson’s boxing days: everyone has a plan until they get punched in the mouth.
Taking Advantage of Options in a Bull Market
The current bull market has driven stock prices to record highs, leaving many investors worried about missing out on potential future gains. However, options present an intriguing alternative to buying stocks outright. By harnessing the power of options, investors can position themselves for future profits without taking on excessive risks.
One prime example of this strategy can be seen with KKR & Co, a global money manager that offers investors the opportunity to invest alongside some of the brightest minds in private-equity markets. With the stock trading near its all-time high of $84.69, now may be the perfect time to consider purchasing KKR’s February $90 call option for around $2. A call option grants the holder the right to buy a security at a predetermined price within a specific time frame.
If KKR stock reaches $100 at expiration, the call option would be worth approximately $10, resulting in a substantial profit. On the other hand, if the stock price falls below the strike price, the money invested in the call option would be lost unless adjustments are made to salvage some value.
This example showcases how savvy investors can use options to gain exposure to high-priced stocks while minimizing their upfront costs. The approach is not exotic but simply requires a nonlinear perspective on investing.
In conclusion, as stocks continue to soar to new heights, exploring the potential of options is a wise move for investors aiming to capitalize on the market’s upward momentum.