I thought I would start this week with another Black Swan Trade.
We recently had a discussion about economic Black Swans, their effects, and how the exposure to the improbable could be very, very profitable with minimal risk.
Once again, we’re going to talk about placing a small bet on something very unpredictable.
If it misses, you lose less money than it costs to take the family to movies and a cheap dinner on Friday night.
Profiting from Politics
The debate over gun control is loud now, but as we move into 2020, it is going to get even louder.
This debate has weighed on the shares of some gun manufacturers and retailers.
Walmart Inc. (NYSE:WMT), Dick’s Sporting Goods Inc. (NYSE:DKS), and other retailers have felt the pressure so severely that they have either restricted the type of firearms they will sell, or stopped selling firearms and ammunition altogether.
Several gun manufacturers have seen their shares take a hit over the last year as demand has weakened after the furious sales pace in 2016.
As the noise level ramps up around the issue as we move towards next year’s election, gun-related stocks could get quite volatile.
It’s entirely possible that we see frantic buying if it looks like the far-left is winning the White House, or gaining ground in the Senate.
I have no clear perception right now which side will gain control of this debate, but I do know it’s going to a very loud discussion.
So, I’m going to make a bet.
I’ll bet that nothing much at all happens about firearm laws in this country and we either have a clear GOP win of both houses and the White House, or at least retain control of one of the three.
If that happens, no matter how loud the argument gets, it’s impossible to pass meaningful legislation of any kind.
In that case, we could see demand increase to pre-2016 levels, and gun-related companies will see a spike in their stock prices.
Picking the Right Target
To bet on better days ahead for the firearms industry I’d look at January 2021 calls on American Outdoors Brands Corp. (NasdaqGS:AOBC).
This is the company that makes Smith & Wesson handguns, rifles, and gun-related products like cleaning kits and gunsmithing tools.
They also sell products for survival and emergency preparedness. The company changed its name to American Outdoors in 2017, but has been in business since 1852, so they have endured a few election and political cycles.
You can buy the January 2021 calls right now for less than $1.
My trusty option calculator tells me that the fair value of the call option right now is about $0.80, maybe even less if you place your order on a down day in the broader stock market.
If the stock should get back to the highs of 2018 and volatility spikes back to the highs of the year, you could easily make 7-10 times your stake.
During the last presidential election, the stock ran up as high as $30 a share, which would yield something greater than 25 times your small bet.
Keep in mind from our last Black Swan discussion that the stock doesn’t have to reach the strike price for you to multiply your money.
If the price just moves in the direction of the strike and volatility increases, these options will leap ahead in price doubling, tripling, or more your wager.
It’s quite possible that with as contentious a debate as this will be that you’re able to make huge gains on both sides of the trade.
Keep your bets small as the potential payouts are enormous even with a small stake in this Black Swan opportunity.
The Best Offense is a Good Defense
There’s another defense-minded play to make as China continues to pressure its neighbors and the U.S. military in the South China Sea.
For years, they’ve been pushing their way out into the water, trying to chase off the U.S. and its allies from an enormous deposit of oil and natural gas.
The reason they are playing roughshod over their neighbors is because they have a weapon up their sleeves that could neutralize any threat in the South China Sea.
This weapon has enough speed and range to go from Manhattan to Miami in just over 10 minutes, and these suckers have enough punch to wipe out an aircraft carrier with one shot.
Lucky for us, the United States’ military has an answer.
One company has a new superweapon that can blow these carrier-killer missiles clean out of the sky, and make anyone think twice about trying to take something that isn’t theirs.
Here in this report, you can learn more about this company, their superweapon, and how you can take advantage of this opportunity as we upgrade our ships to protect our allies with the next generation of American firepower.
To the Max,