What’s the riskiest investment you could make right now?
Inverse volatility ETFs?
If you really want to cut your teeth on some risky business, there’s only one buy that’ll get your heart rate up in this market.
Yup, Russian stocks.
Here’s just a handful of returns from major Russian stocks in the past month (using U.S. over-the-counter market data):
Novatek (NOVKY): -82%
Gazprom (EDR): -87%
Lukoil (LUKOY): -92%
Sperbank (SBRCY): -96%
If that’s not blood in the streets, I don’t know what is.
So I put it to our True Options Masters this week: What do you think of the ultimate contrarian play in the stock market right now?
Their answers came in all across the board… and each will surprise you in a different way.
Before we get to that, let’s check in on last week’s Options Arena poll… Oh, Amber crushed it yet again!
Who will win out this month?
It’s for you to decide…
Check out our Masters’ top ideas below, and click here to vote on your favorite!
Chad: This Stock Should Go to $0 — Here’s How to Profit
The only way I’d play Russian stocks, at least in the short term, is to the downside.
A relatively safe play (if that’s even possible when it comes to Russia) is the VanEck Vectors Russia ETF (RSX). This fund is still trading in the U.S. for now, but there’s no telling how long it stays active.
It’s fallen over 80% since last October. And now we are on the fifth day of the Russian stock market being closed, with many speculating it may never open again. London exchanges have already delisted Russian stocks, so it’s becoming increasingly hard to trade.
That’s why I’d bet on RSX going to $0 before it does anything else.
I think it either has to delist or plunge even more. I don’t see a scenario in the coming months where it bounces and provides a meaningful opportunity to the upside. Because of that, I’d do short-term bearish plays on the fund. If this is your stance, too, you have a few ways to play it.
A simple put option would work — but option premiums are so juiced, you’d be lucky to double your money if the index fell to $0. You can sell a naked call around $10 for a 10% return in less than a month, just for the income, but that leaves you with unlimited upside risk if the fund pops.
The best alternative is to create a bearish spread to manage risk and generate profits as long as RSX is below a set price when the option expires.
I’ve found OptionStrat.com to be a great source to play with these different strategies, and visualize your risk and loss. You can edit the prices to better reflect what you are seeing in the market. And make sure to look at your max risk compared to max profit. You’ll want those to be close to even if you are right around the strike price.
The further above the stock you go with a bearish spread, your max gain will become smaller than your max risk since, generally speaking, it is less likely the stock pops that much. Just know that RSX is a volatile asset and could easily move 50% in either direction. So plan accordingly. Make sure your losses are not occurring at a price you think RSX could pop to before the option expires.
Many brokerages will set this type of trade up for you with prefilled selections, but if not, you can simply execute it one leg at a time.
Mike: Trading Russian Stocks Could Soon Be Illegal
There’s that old saying about those who don’t remember history are doomed to repeat it.
Instead of risking doom, we should consider what history tells us about Russian stocks in times of crisis.
The chart below shows Russian stocks around World War I.
Markets closed for the war. This was also the case for other countries at the time, and in World War II as well. When the market reopened after the war, government officials confiscated the wealth and wiped out the stocks.
We won’t see the exact same thing this time. But Russia is unlikely to resume normal operations anytime soon. The country faces crushing economic sanctions that will lead to inflation. This could lead to stocks rising in rubles, but converting rubles to dollars will result in a loss.
That’s assuming Americans will even be allowed to trade Russian assets in the future. For decades, it was illegal for U.S. citizens to invest in Cuba or to do business with Iran. So we need to remember that sanctions on Russia could linger for years.
Could Russian stocks rally? Sure, why not. Is it possible for U.S.-based investors to profit from that? Maybe not. When risks outweigh rewards, it’s best to look for other opportunities.
Amber: Hope Is a Very Expensive Strategy
A friend once told me if you don’t know how to seize ships in a country’s navy, don’t hunt for bargains in beaten-down countries.
He was referring to Paul Singer’s years-long fight with Argentina.
Singer’s hedge fund, Elliott Management, bought an estimated 600 million dollars’ worth of Argentine bonds for about $100 million around 2002. After a change in government, Argentina offered bondholders a haircut. About 92% accepted, but Singer held out for more money. He would hold out for 14 years, filing legal challenges to Argentina around the world.
His most famous win came in 2012, when Elliott was allowed to take possession of an Argentine Navy vessel off the coast of Ghana. Eventually, the International Tribunal of the Law of the Sea invalidated that court order, and the ship sailed back to Argentina. But, the country got the message. Singer settled with Argentine for $2.4 billion in 2015.
I don’t have lawyers who know how to do things like that. But seriously, I do have the skill set to analyze these special situations.
Looking at charts, these stocks are in downtrends. The only reason to buy is hope. I don’t trade based on hope. It’s actually a very expensive strategy. While hoping for a profit, trading capital is tied up. And there is no guarantee of success.
Someone might make a fortune off these stocks. But I’ll be making my fortune trading options in markets I understand.
Chris: Support Capitalism. F*** Tyranny. Make Money!
I’ve invested almost $15,000 in five leading Russian stocks in the last week.
I published a tweet storm the other day with a zero-shame appeal to investors: Russian stocks are on sale and you need to buy them, now.
The media wants you to believe that if you buy these stocks you’re just as guilty as Vladimir Putin for killing those kids. As Chad told me this week: “Stock exchanges are engaging in leftist cancel culture with Russia.” He’s right, and it’s incredibly short-sighted.
These companies didn’t invade Ukraine. These companies didn’t murder civilians.
These companies are hallmarks of capitalism in a nation straddled by dictatorship under the guise of a fake presidency.
Capitalism is the fire hose that puts out communism’s flame. Canceling these stocks, in an era where stocks are so inextricably linked to the economy, is not the right move.
Buying them is.
So, if you have any reservations about purchasing these stocks yourself because the media calls it a sin, I am giving you my permission to shamelessly buy as many of these companies as you can. I’m viewing this as the year’s best buying opportunity — possibly even the decade’s, second only to U.S. stocks in March 2020. When these sanctions release we will see overnight 200%, 300%, and even 400% gains on these stocks.
Here’s how you can do this on your own with about 20 minutes of research.
Google what Russia’s leading stocks are. Read the news stories that pop up. Pay attention to the names of publicly traded Russian companies. Then, Google what Russian stocks are available on your brokerage site. If any of the beaten-down stocks that you read about pop up, buy and don’t look back.
If your brokerage account is blocking you from purchasing these stocks, be patient! Check a few hours later, or the next day. They’re dropping these holds just as fast as they’re placing them.
And remember that this is a speculative opportunity for bold investors. I bought options on one but these stocks are so battered down, the stocks are their own leverage.
Support capitalism. F*** tyranny. Make money. Put that on a shirt!
This might be our most controversial topic to date, and we want to hear your thoughts…
Managing Editor, True Options Masters