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High-Flying
Hedge Hunter
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How you can capitalize on this strategy.
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High-flying hedge funds have generated headlines and high returns for their investors, even in perilous market eras such as this one.
Unfortunately, these aggressively managed private investment partnerships are usually not available to the retail investor, because of the minimum
investment required -- generally more than $1 million. As a result, hedge funds cater largely to institutions and very wealthy individuals.
However, the investment strategies employed by hedge funds are available to those willing to devote the necessary time and research. One strategy that
many hedge funds use is the so-called “pair trade,” which involves being long a security or index in a particular sector and being short a
different security or index from the same sector. Funds like this trade because it has proven to be a moneymaker if there’s volatility in any of the
major sectors.
We’ve taken this strategy and thrown options into the mix to provide an Alert service -- Schaeffer’s Hedge Hunter -- that makes a hedge
fund strategy available to the everyday trader.
How does Hedge Hunter work? Anyone can place a big market bet and score a big return once in a while. At the same time, a trader can take
big losses when these bets do not turn out as expected. However, one can mitigate the risk of making big sector bets and still hit home runs by playing calls
and puts on stocks or exchange-traded funds (ETF) within the same sector.
Using this hedge fund approach, we will buy call (or put) options on a stock within a sector that is displaying above–average volatility, and hedge
this position by purchasing puts (or calls) on a stock or ETF within the same sector. For example, assume we like the prospects for the retailing group, but
are generally bearish on large–cap stocks. We might recommend the purchase of Chico’s calls and simultaneously recommend the purchase of Wal-Mart
puts. Schaeffer’s Hedge Hunter thus combines a proven hedge–like strategy – pairs trading – with the power of
options – less capital at risk and leveraged returns compared to playing the underlying equities.
This allows subscribers to profit from volatility in a sector no matter where the sector is headed. Using our Expectational Analysis® approach, we can
identify which components of a sector are likely to move against the overall sector. This increases our chances for being correct on one or both ends of the
trade and at the same time leveraging this advantage via the sector’s volatility.
In addition, we further maximize the trade’s profit potential by managing each position separately to profit on both sides or contain losses. The
end result is that subscribers can profit from a hedging technique employed by many long/short hedge funds even though they don’t have the resources to
participate in an actual hedge fund.
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Our Hedge Hunter strategy has generated consistent gains
Just look at some of our recent winning trades:
- Financial Select Sector SPDR calls and Assurant puts made +79.5% GAINS
- Royal Bank of Canada calls and Bank of New York puts made +61.4% GAINS
- Interncontinental Exchange calls and NYSE Euronext puts made +55.2% GAINS
- Chipotle Mexican Grill puts and Panera Bread calls made +26.5% GAINS
- Meritage Homes calls and SPDR S&P Homebuilders Trust puts made +25.8% GAINS
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