And I’m not just talking stock investors, either: Just about every asset class out there — from real estate to commodities to fixed income securities — are getting taken out back.

But mark my words: This is not going to last forever. It never does and it never will. The fact is I’ve been through a ton of crises and know how to handle them, no ifs, ands, or buts about it.

Does that mean I can tell you with absolute certainty what investments are headed higher? Nope: No one can. But I can tell you that — right now — the stock markets are ready to deliver simply mind-blowing bargains.

As you can see from the top part of this chart of the S&P 500 — a good proxy for the broader U.S. stock market — stock prices have taken a beating. While that’s painful for all of us, it’s far from news.

But take a look at the bottom part of the chart: The price-to-earnings (P/E) ratio for the S&P 500 is at historically low levels. In fact, it’s around 10 for the entire stock market. And that is news.

Remember, the P/E ratio takes a stock’s — or in our case, a market’s — price and divides it by the amount of earnings it makes. So, a P/E of 10 means that for every dollar in stock value, that company earned 10 cents.

Is that significant? You bet. With the stock market making 10 cents in profit for every dollar investment, it’s booking returns of 10% for stock investors. Those are stellar numbers, for sure, and blow away just about every other asset class out there.

But that’s not all. The chart also shows that when the market was at similar levels as today — which was way back in 2002 — the P/E ratios were much, much higher. In fact, the market’s P/E ratio of 45 in mid-2002 is nearly five times its current rate.

Meaningful? Yep. It shows that earnings are in much better shape than they are today. After all, when prices stay the same and P/E ratios decrease, earnings are on the rise.

But even more importantly, today’s relatively low market P/E means that it’s jam-packed with bargains – in fact, many more than in 2002. That means there are tons for stocks for sale at rock-bottom prices. And that’s a huge plus for a new bull market.

My Readers’ Portfolios are Going Gangbusters!

Let’s get down to brass tacks: While stock investors have had a tough time of it over the past few months, my portfolio has been delivering outstanding returns. Take a look for yourself…

As you can see from this chart, since April stock investors have booked a mind-blowing 29% in losses. This is based on a whopping 401-point loss from April to October on the S&P 500, a good proxy for overall stock market profitability.

Meanwhile, my Easy Money Options subscribers have amassed a solid 16% profit, on average, over the same time period. That means they’ve outperformed the average stock investor by a staggering 45%!

And don’t forget: They’ve collected these profits during one of the biggest financial messes of all time. To join my readers at Easy Money Options and find out how you can collect significant gains, even in this market, check out this free report. Even if you never tried options investing, I’ll show you how easy and profitable it can be.

Best Regards,
Wayne Burritt
December 3, 2008

Cheap Stocks and Mind-Blowing Bargains was originally featured in the Penny Sleuth.

That kind of talk is just plain dangerous.

Don’t get me wrong — I love the fact that more people are discovering the profit potential of options. I’ve been analyzing them for a long time. And since 1999, I’ve been recommending specific option plays for the subscribers of my Options Hotline service.

But despite our success at Options Hotline, I would never be naïve enough to call my work “investment advice.” When you’re dealing with options, you shouldn’t use the word “investment” at all. It’s speculating. And if you don’t understand the difference, you’re setting yourself up for a massive failure.

You “invest” in things like stocks, bonds, mutual funds, and even real estate. You focus on the long-term. Successful investing is like planting acorns and watching them turn into oak trees.

Speculating, on the other hand, is like playing with fireworks on a rainy winter’s evening. You light the fuse, and seconds later, it has either fizzled out or a huge colorful explosion high up in the sky has illuminated the whole world.

Options trading may sound like gambling. And for people who don’t know what they’re doing, it usually is. But seasoned traders know how to bend the odds in their favor. Doing that means having a healthy respect for a speculator’s best friend — and worst enemy — leverage.

Leverage is the magic that turns small price movements into large profits…or losses. It is found in many different guises, but the fundamental design is always the same. The leveraged speculator uses OPM (Other People’s Money) in an attempt to make more money than would otherwise be possible with nothing but his own funds. In other words, you augment your position with borrowed money.

It sounds dangerous…and if not managed prudently, it can be bad for your wealth. BUT, if leverage can be applied to situations with strictly limited risk, it takes on a more sensible aspect. It becomes…”super-leverage.”

Super-leverage is the art of profiting from changing prices, with limited risk. No margin calls, no demands for additional funds, no forced liquidations.

The instruments of super-leverage are exchange-traded stock options.

Options are tradable contracts that give you the right to buy or sell a specific underlying instrument at a specific price within a specific time period. For example, a May $100 Apple Computer call option gives the option-buyer the right to buy one share of Apple Computer for $100, anytime between now and option expiration on May 18, 2007. Today, with the price of one Apple share at $100.80, the June $100 call option costs $2.60. So for under $3.00, an option-buyer can participate in the upside of a $100 stock…but only until May 18.

That means a small move in Apple’s stock price can create a huge move in the price of the call option. In fact, that’s exactly what has happened over the last few trading days. Since April 19, Apple stock has jumped more than $10 a share, for a gain of nearly 12%. But over the same timeframe, the May $100 call option has gone from 75 cents to $2.60 — a gain of nearly 250%. That’s leverage!

But on the downside, options are wasting assets. They have strict expiration dates. If, for example, Apple Computer shares close below $180 on May 18, the May $180 call options would expire worthless. That is your risk.

It was once calculated that 90% of all options expire worthless. But that doesn’t mean you have a 90% chance of losing money. A successful options trader will offset eight or nine losers with one or two spectacular winners…and still have money left over. The trick to always coming out ahead is to develop a strategy and stick to it.

My dad, legendary options trader Paul Sarnoff, explained it best: “Every trader with imagination and talent goes into a specific commodity armed with a trading plan.” With his help, I developed a system I call my “Complete Game Plan for Trading Success.” Followed correctly, it can be a powerful tool to make sure you don’t get in over your head.

It starts with some simple calculations. Just ask yourself the following questions before you risk a single cent:

1. How much am I willing to pay for the option? As I said, you can lose 100% of the money you put into an option. So never bet more money than you can afford to lose. Once you’ve set your limit, stick to it. Don’t chase an option that’s more expensive than you want to pay. Either wait for the price to drop, or look for another one to buy.

2. What will I do if I’m right? Have a profit target in mind for each option you buy, and an idea of how long the move will take. Be realistic — what you honestly think will happen, not what you hope will happen. (If you can’t do that, don’t buy the option.) Again, stick to your plan — give the option some time to reach your goal. If you meet your goal, either sell right away or watch the option carefully and sell before it falls.

3. When will I get out if I’m wrong? This one’s tough. No one wants to admit they’re wrong. And everyone hopes they’ll eventually be proven right. That kind of thinking might fly in the face of stock investing — but when speculating with options, you’re up against the clock. The best thing to do is set strict stop-loss strategies — i.e., orders to sell if the option falls to a certain price. Getting out of a bad position before it’s too late is one of the world’s most overlooked wealth-protection strategies.

You should always speculate based on what you can lose, not what you can gain. Be prepared to handle trading losses. Never add to a losing position. That is how many players get knocked out of the game. You want to be in there when the market goes your way. You, or your broker, must monitor your positions closely. They don’t ring a bell when it’s time to get out, so make sure you have an exit strategy in place for each trade.

It may sound like a lot of work — but believe me, it’s worth it. I’ve seen options skyrocket 210% in three weeks… 472% in less than a month… even 260% in eight days…

Of course, I’ve also seen a good number of trades go nowhere. But following the Complete Game Plan for Trading Success, the odds are good you’ll still come out ahead.

Just never make the mistake of thinking that you’re “investing.”

Sincerely,
Steve Sarnoff
October 18, 2007

P.S.: If you are interested in the unlimited potential of these kinds of “speculations,” then you are in luck. My publisher has given me the chance to give away six free months of my options service, Options Hotline. So be my guest, check out this free report explaining it all to see how you too can pull in profits of 165%, 220% and even 300%, just like my current readers have

Investing with Options Plays was originally featured in the Penny Sleuth.

Well, I use a series of proprietary stock screeners and charts to narrow things down. Throw in some fundamental analysis and some other tricks, and I’m often able to find a few good candidates for speculation.

Of course, very few people have the time and will to examine the markets like I do. In fact, many prefer to ignore individual stocks and simply focus on the big picture. And thanks to recent innovations in the options markets, it’s now possible to speculate on the big picture, too. You probably won’t see the kind of returns you could enjoy with regular stock options — but it’s a useful short cut without worrying about individual stocks.

I’m sure you’ve heard of index funds — securities that represent an entire index, giving you an easy but inexpensive way to cash in on that index’s move. For instance, SPIDERS cover the S&P 500 Index. DIAMONDS (DIA) cover the Dow Jones Industrial Average.

There are even funds for some lesser-known indexes, like the Powershares QQQ Trust (QQQQ), which follows the Nasdaq 100 or the iShares Russell 2000 Fund (IWM).

Now, keep in mind, these are NOT mutual funds. When you buy a mutual fund, the fund manager uses your money to buy more shares of the stocks that the fund holds. Index funds, on the other hand, are closed-end funds. That means each share represents a fixed amount of stock on the index — and that’s why they are as easy to buy and sell as stocks.

They’re also cheap — usually valued at around 1/10th or 1/100th of the index price. So with the Dow around 13,200, the DIAMONDS sell for about $132. When the Russell 200 is at 830, the iShares are priced around $83. (Because of the nature of closed-end funds, the ratio isn’t always exact — but it will be close.)

You can’t find a better bet for the long-term direction of the market than these index funds. However, you can also rack up some nice short-term gains with them, too. That’s because you can buy options on the index funds, just like with most other stocks. Index fund options behave the same way, too…giving you the power to use Superleverage on the entire market.

Superleverage is the art of using options to make phenomenal gains from small price moves. Buying options on index funds essentially lets you bet on which direction the index will go. And with put options, you can even bet that the index will go down.

For example, if the Dow is at 13,000 but you think a fall is in the cards, you can buy a put on DIAMONDS. Remember, DIAMONDS are valued at 1/100th of the Dow. So if you think the Dow will fall to 12,000, you would buy a put option with a strike price of $120.

As I type, the Dow is sitting at 13,264. More importantly, the Dow DIAMONDS are at $132.74, and $120 puts on DIAMONDS (DIA) with an expiration date in September are selling for 85 cents a share — or $85 a position. (Please note, I am not recommending this option — it’s just easier to illustrate the potential using actual numbers.)

Now, if the DIAMONDS aren’t selling for less than $120 when the puts’ expiration date rolls around in September, the options will expire worthless. But if the Dow even starts to slip, the puts should increase in value. And every dollar the DIAMONDS fall below $120 is an extra $100 of profit.

So if the Dow falls to 11,900, DIAMONDS should be at $119 — giving the DIA puts a value of at least $100 — good for an 18% return. And it just gets better from there. A Dow at 11,000 means a $110 DIAMOND — and a $1,000 put…a 1,076% gain. Of course, if you expect the Dow’s upswing to continue for a little while yet, you can buy a call option. Right now a September DIAMOND call with a strike price of $135 (predicting a Dow 13,500 or higher) are going for $280. If the Dow continues its impressive run and shoots to 14,000, the DIAMOND calls will have a value of $500 — good for 78%.

This process can be repeated for just about every index you can name. It can even be used on entire countries, regions or industries. For instance, you can trade options on the iShares Japan Index (EWJ), a fund featuring a representative pool of Japanese stocks. Or try bet on the entire Asia region with options on the Vanguard Pacific Fund (VPL). Or bet on the medical industry with the Healthcare Select Sector SPDR (XLV).

The Chicago Board Options Exchange has an entire list of closed-end funds you can buy options on at http://www.cboe.com/Products/OptionsOnETFs.aspx.

As always, options are risky — and you should never buy options with money you can’t afford to lose. But for macro-analysts who want to speculate, these kind of options are a dream come true.

Instead of winnowing your analysis down to a single stock, you can stop your search at the index level.

Of course, there are pros and cons to this approach. With an option on a single stock, you’re taking an all-or-nothing approach. If you’re right about the stock’s prospects, there’s a big payoff. But there’s also a 50% chance you’ll be wrong…and the option will lose.

With an index option, you don’t have to be completely right — just mostly right. That’s because the price of the index fund reflects what’s happening to all the stocks in the fund. So, if say the price of oil plummets, you’d expect oil companies to take a hit — lowering the value of something like the Oil Service HOLDR Trust (OIH). But it’s unlikely that all the stocks will fall the same amount. Some will plummet, while others drop a little. A couple may even stay even…and a precious few could even rise.

The point is, enough of the fund’s stocks have to fall to make a difference in the fund’s price. And with so many factors determining each individual stock’s price, a lower fund price isn’t a slam-dunk. You may find you could have made more betting against a particular stock in the fund.

I’ll admit, sometimes I when I can’t find a good option on a single stock, I’ll recommend an index fund option. But I prefer to take the extra step to work my way down to the single-stock level.

Then again, I have an entire week to analyze the market from every angle. Most people don’t have that kind of time. So using index fund options can be an economical short-cut to find great speculations.

Sincerely,
Steve Sarnoff
May 10, 2007

P.S.: For those who are interested, I run a service that recommends one specific option per week. I’ve been running this service for eight years, and I’d like to think I’ve been helping my readers tremendously.

Investing with Options Plays was originally featured in the Penny Sleuth.