Doctor’s Rounds for January 22nd, 2022

These 3 Tactical Catalyst Trades Could Multiply Your Money More Than You Ever Thought Possible

Jim Fink: Jim Fink here with Joe Duarte for his latest “Daily Rounds.” Today we’ll be debating three “Tactical Catalysts” that could make you a whole lot of money in the year to come… and zeroing in on the one we have the most confidence in.

Dr. Joe Duarte: Yeah, Jim, should be a lot fun. And best of all it’s free! Just like ALL of the reports & videos you’ve signed up for this week, including our grand finale… which is the Profit Catalyst Symposium on Tuesday, January 25th at 1pm Eastern time.

Fink: I think you’re the Catalyst, Joe. You’ve got us all stirred up here. Jim Pearce and John Persinos can’t stop talking about you at our virtual water cooler. Very impressive stuff.

Duarte: I'll tell you, I’m proud to join the team but I’m in a big hurry to get to work!

Fink: And that work means, specifically, that you were hired to zero in on new, profitable Catalysts. And you’re on a mission to uncover the #1 Catalyst Trade for 2022.

Duarte: That's right... a single trade that could go up as much as 2,022% over the course of the coming year. That’s the challenge.

Fink: I think you’re up to it! Because as we were discussing before the camera started rolling, making a Catalyst Trade means much more than just narrowing down your selections and finding an accelerating trend that’s at a tipping point.

You ALSO need a way to play it… meaning, an angle of attack and a window of timing.

Duarte: As you well know, there are so many ways to set up a trade. We want to find the one that gives us that maximum possible advantage, but that is no so hard for everyday investors without a million-dollar bankroll.

Fink: I think a lot of our readers get stuck on “so many ways.”

Duarte: That’s really true. You have so many new options as an investor these days, it can be paralyzing. I mean speaking of “options”... you could literally TRADE OPTIONS, like Jim does. Or you could trade more like Jim  Pearce and John Persinos... they like to stay more focused on initial stock picks and pick that right price.

Fink: And you’re doing both! I mean, you’ve even written books on options trading.

Duarte: Well, I had a little help on that, but just the same, that’s what talking about today when we say “Tactical Catalyst Trades.”

Fink: Can you explain more what you mean by that exactly?

Duarte: Sure... here’s the best way I could put it. Imagine you’re out on a lake, fishing. I know you've done some fishing. Would you rather have one of those little SONAR units that find where the big fish are hiding, or would you rather have the best, biggest, baddest fishing rod & reel that will help you catch the most fish?

Fink: I’d rather just eat the fish myself. But I get your point. To put yourself in the best position for success, you want to have both.

Duarte: That's right. We talked a lot about screening & selection the last couple of days, that’s the SONAR. But even if you find that fish, you want to make sure you actually reel it in, and you want to have that delicious profit. And it all hinges on the angle of attack and the timing window.

Fink: Of course.

Duarte: For instance yesterday, during the conversation with John Persinos, we came up with a dilemma. We zeroed in on a medical stock we’re calling the “Fat Blocker,” and that company was on the verge of a breakthrough, but just buying the stock wasn’t really the best way to unlock a profitable trade in that case. We had to add an option trade with a more narrow window of timing.

Fink: How narrow was that window?

Duarte: Well, we’re not talking about day-trading. We're not watching the prices jump up and down every minute like a slot machine addict — you don't want that kind of thing. But we’re not talking about buy and hold for decades either. We're looking for that sweet spot of maybe a few weeks to a few months.

Fink: That’s the kind of tactical trading I prefer too. Because the market will pay us extra for narrowing down those time windows somewhat, those ranges of price and calendar dates to enter & exit. To be more specific, with options trades we pay less because they expire. We have to not only be right but we have to be right BEFORE they expire. Stocks don't expire.

Duarte: You're so right. Here's an example: in the case of this particular setup we discussed yesterday, the "Brain Saver," there was a way to multiply the potential profit many times over. I think that might be the difference between the ways you and I trade… each trade is different but you’re multiplying the certainty that you’ll win and I’m generally focused on multiplying the potential profit if I do win.

Fink: Yes, we’re using similar tools in somewhat different ways.

Duarte: Let’s see how that plays out in more detail with today’s first catalyst trade, "The 12X Money Multiplier."

Fink: So far we discussed how trading tactics like using options can multiply your advantages if your research can point you to more precise windows of price and timing.

Duarte: We contrasted an approach based on certainty, like Jim’s, to an approach based on going for big wins, like MINE

But there’s another twist that’s worth considering and it’s where all THREE of our catalysts reside today.

Fink: Yeah, and what if, in the same way that you, Joe, have zeroed in on “Moonshot Catalyst Trades” and “Med-Tech Catalyst Trades, ”you can also zero in on those particular kinds of trading tactics that are especially suited for getting extra juice out of the strange and historically unusual setups we’re seeing right now?

Duarte: Yeah, basically if you’re going to deal with all this uncertainty and volatility you may as well get paid well for it.

Fink: Tell me more!

Duarte: OK, let’s say you have a high priced stock which looks as if it’s going to move up in the next few weeks or months and you really don’t want to deal with the complexity of a spread or the expense of a covered call.

Fink: Yeah, I don’t know man. I live doing spreads.

Duarte: And nobody does them better than you! But work with me a little here, OK?

Fink: OK, let’s hear it out.

Duarte: So, you find a great looking price chart and, instead of ponying up $100,000 for 100 shares, you might want to buy a call option, for a fraction of the price, maybe $5,000 or $10,000.

Fink: Yeah, that makes sense, especially in this kind of – as you call it – "sick" market.

Duarte: Yeah, that's what the kids call it these days, so I'm trying to be young! But you look really good, especially if the stock pops, which is likely given the requisites of the Catalyst method that we're using to find them.

Fink: You mean like that stock you recommended last year – PDF Solutions?

Duarte: Exactly.  All we have to do is adapt the criteria to more expensive stocks

Fink: So which comes first, the horse or the cart? Buy a stock like PDF Solutions and then add leverage through options, or look for setups where such options leverage is underpriced and, voila!, PDF Solutions is one of them?

Duarte: Yeah, it's just two ways of describing the same analytical process.

Fink: Great, so it’s all about doing the right thing in the right situation, and with your knowledge of both stocks and options, Joe, this type of mandate and skills, leveraged calls can be very attractive!

Duarte: Absolutely!

Fink: But you DON’T HAVE TO trade options and Dr. Joe is always going to give his readers regular old stock trades with cool companies. And he’s also going to give 2-3 more recommendations to play the same stock by trading options. Some will be more conservative option trades. Some will be more aggressive. The idea is options give you more flexibility to make more money from these "sick" markets.

Duarte: Exactly. Let’s take that further by looking at a different tactical Catalyst, “The Board Gamer.”

We’re looking at another growing trend that’s come to a tipping point in recent years. It's not a breakthrough trend or a new technology technology or a new social fad… it’s something that is happening inside of company financials.

Fink: Yeah... this sounds esoteric but it really isn't. Because what we’re talking about is very simple and human. We’re talking about self-dealing… management bending policy and law to pay itself easy money... for instance via “bullet-dodging” (where you sell high before negative public announcements and/or buy low after) or “spring-loading” (buy low before a positive public announcement and/or sell high afterwards).

Elon Musk would be a good example of this because he is going above and beyond in skirting SEC regulations by doing announcements on Twitter without registrations, and moreover in a nepotistic fashion by allowing direct relatives to benefit as such.

But the truth is, that’s just a colorful and flagrant case of a common practice. The trend is for boards to provide less and less curbs against management self-dealing. Re-pricing or suspicious market timing of executive stock option grants is an especially heinous example of this.

The mantra of the past few decades was “alignment” and therefore stock-based compensation tied to performance, but because boards are socially incestuous (managers on one another’s boards, the whole golf course/supper club type scene of 1% culture), there really is no curb at all and in fact leads to more flagrant abuse.

Duarte: Yeah, that stuff is really stinky — it hides inside financial statements where you often can’t see it (inside of 10ks), and you only find about it later (in the press, or in the form of some form-4 disclosure) so the only footprint that is ACTIONABLE is going to be a TECHNICAL footprint.

Fink: Yeah, so here we have another case where the Catalyst is a real world social phenomenon with 10-figure impacts in some cases, but it’s manifesting itself in this technical or “tactical” area.

Duarte: And sometimes this kind of really tricky stuff shows up in technically manifested signals and even unusual options activity which could ITSELF be called a Catalyst opportunity worth specific consideration.

Fink: Yeah we both look at these anomalies in different ways, of course, but these things are real and they can be very useful when finding stocks that are about to make big moves.

Duarte: Yup — that's the way we like it!

Fink: Yeah, we got deep into the weeds of an advanced options trading strategy so let’s conclude with something more fun and simple… “The Free Lunch.”

Duarte: OK — what do we mean by "free?"

We know that you pay to buy a stock because it confers partial ownership of a sort… it is an asset, after all. With options, you pay to buy an option because… well, having options is good! Like when we discussed the “Money Multiplier,” we were paying to buy an option that will profit huge if the stock goes up in the window of time that we targeted.

But you could also buy an option that gives you the right to sell, for instance, at today’s price even if the stock goes down in the dumps. That's something we saw company CEOs doing in the topic we just discussed, in “The Board Gamer.”

Fink: Well, as you know Joe, you can also sell options… which means someone else will pay YOU for THEIR right to have an option.

Now why would YOU want to sell that right? Well in a basic sense because you think this particular option is actually useless and they’re paying you more than it’s really worth. The proverbial “option to dock a boat in the Sahara desert” or “option to mount a unicorn head over your fireplace.” You would WANT to sell that, right? This is something I do all the time, and I'm kind of a card shark.

Duarte: Yeah, it’s a little confusing at first, you know, but it’s not really difficult when we work it through. So sometimes we pay a premium when we sell options meaning we’re cash negative.

But there are also options trades where we don’t pay anything. These are cash “neutral” options trades.

Fink: Yeah, free is fun — everybody likes free, right? But there’s a particular situation we see in 2021, and now in 2022 that makes this kind of neutral or near-neutral trade specifically attractive more so than it would be otherwise.

Duarte: Sure. It’s quite suitable for this kind of long-lasting late bull market, or blow-off top, or whatever we may call it, you know, this "sick" market. And of course, whether we mean the market in general or specific areas like FAANG stocks that seem to be persistently priced higher than they “should” be.

What do you do when everybody else at the party is drunk and you’re sober? One way to attack this is what’s called a "call ratio backspread."

Fink: Yeah, Let’s think about a stock like Tesla that’s in the news a lot, and it drives everyone a bit crazy. It has its superfans and its superhaters.

Let's face it, we live in a Twitter world. Nobody has lukewarm opinions.

Duarte: You think this market, or this stock, could go in the tank, but on the other hand you think it could keep going up & up. The one thing that you DON’T think it’s going to do is go up slowly. Does that sound like the world we’ll see in 2022? Actually, to me, it does.

Fink: Me too.

Duarte: This kind of trade is also suitable to what I mean when I say “now and later”... let’s say a pharma company has one successful long-term cash cow drug, but over the next few months, their short-term fate is riding on a key FDA approval of their NEW drug. They’re either going to take a temporary hit or they’re going to the moon.

Fink: Yeah I get that. So basically what you do is SELL an option that says “it’ll go up a little”... you don’t want that! Sell that to the sucker at the card table and they’ll hand you a bit of money from the premium. Now take that SAME bit of money and buy a LARGER amount of options contracts that say “this stock is going to go up a lot”... naturally those are going to be cheaper because that’s less likely, so you can buy more of them for the same price. Trade a dime for two nickels basically.

The trade itself is “neutral”... in other words FREE. Nothing is free in life so there is risk if it goes against you, but if your research is high conviction, you’re starting from “free” with a lot of upside.

Duarte: Sure. So what can happen? If the stock goes down or sideways, you get that dime for free and then you lost it. You’re even steven, so no big deal. However, if the stock goes up slightly — the one thing you LEAST expect to happen in a "sick" market — you lose. Happens to the best of us sometimes.

Fink: But if the stock goes up a lot, Joe — which it CAN and DOES in a "sick" market — not only do you make a ton of money (a theoretically unlimited amount, in fact!) but it cost you literally nothing at all to do so.

Duarte: That's right, and that's what we're going for when you do these strategies. So, again, we’re talking not only about a way of juicing profit or managing risk with high-confidence selections that we find with our fundamental research… we’re talking about big, sweeping real-world social trends right in front of our face, that are reaching tipping points in 2022, and we're talking about how to use simple tactical, technical moves that develop into Catalyst trades.

Fink: Yeah, I totally agree with that. This is an attractive kind of setup that brings us to a “meeting of the minds” between us.

But, Joe even considering how powerful the “Board Gamer” and the “Free Lunch” are, you just can’t beat the “12X Multiplier” when you consider how well it complements and leverages your skill in fundamental selection.

So are we agreed that the "12x Multiplier" is our “winner” as the strongest 2022 Tactical Catalyst?

Duarte: Absolutely — and I'm glad we finally agree on something!

Fink: Me too!

Duarte: Jim, it's been great talking to you, because it's been a while, and I'm very pleased to have had this conversation. I hope the audience is enjoying it.

Before we sign off, you know how I am about jokes, so I have to tell you a joke. But I have to warn you... unlike most of my jokes, this is a bad joke.

Fink: Works for me, Joe. I think we SHOULD lighten the mood after that very “galaxy-brained” discussion of trading tactics.

Duarte: OK so... a lawyer, a doctor, and two options traders walk into a bar…

Fink: Well I’m a lawyer, and you’re a doctor, and both of us are options traders… so if this is your way of saying you’ll buy me a glass of wine after we walk out of the studio in just a minute… I’m game. It’ll pair well with all those fish we caught and my free lunch.

Duarte: You're always trying to get stuff off me! I’d be happy to buy you a glass of wine, but first you have to hear the punchline.

Fink: Alright, let's go.

Duarte: So, a lawyer, a doctor, and two options traders walk into a bar… and the bartender says, "Why the long face?"

Fink: I thought that’s what the bartender said to the horse?

Duarte: Well he said it to me too, because I’ve only got a couple more days to crown my top Catalyst Trade for the coming year , and of course you know, that trade could go up as much as 2,022%. And on top of that I’ve got to debate (and this is kind of crazy) the legendary Robert Rapier tomorrow about income-generating “Cashflow Catalyst Trades.” That's a lot of pressure!

Fink: We’re all rooting for you, Joe. Today I learned that you are very very bad at telling jokes, but you’re an outstanding tactical trader and you’ve got that long face because — all jokes aside — you take your job of helping our readers very seriously.

Duarte: Hey I already said I’d pay for the drink, no need for all this flattery.

TOMORROW: I go head-to-head with Investing Daily’s resident income expert, Robert Rapier. The topic at hand? Cashflow. I hit him with the Ultimate Cash Flow Catalyst Trade for 2022 and beyond… you’re not going to want to miss this one.

TUESDAY Jan. 25th @ 1pm EST: Join me here at right here at 1pm EST for the 2022 Profit Catalyst Symposium! I’ll reveal my #1 Catalyst Trade for 2022 and beyond and much more.