Q4 Review — And Gearing Up For 2023!

Welcome to 2023!

Most investors are more than ready to close out 2022 and start a new year.

After a brutal bear market for?both?stocks and “safe” bonds, investors are hoping for a better environment this year. And while there are still plenty of risks in play, I’m tracking some great trade setups for 2023.

Today, I want to take a brief look at how my trading models performed in 2023, and then outline some of the best areas of opportunity for the first quarter.

Q4 Performance

The table below includes official stats for both of my trading models.

If you’re following our positions in the?Speculative Trading Program?or the?Accelerated Income Model, your results may differ. Depending on your execution prices, and the timing of contributions or withdrawals, you may have higher or lower returns.

If you’re?NOT?following these trading models, consider subscribing today so you can follow our trades in the year ahead. (Links in comments.)

Speculative Trading Program

The?Speculative Trading Program?uses in-the-money option contracts to take aggressive positions on individual stocks. The program can profit from both rising stocks (using call contracts) and from falling stocks (using put contracts).

This is an aggressive trading strategy that accepts a high amount of risk in exchange for large potential profits. Because of this risk,?I recommend only using a small portion of your investment capital with this strategy.

We generated very strong returns in the fourth quarter, more than doubling our capital.

During October and November, stocks enjoyed a bear market rally. This helped drive profits for several of our bullish plays in energy, insurance and precious metal calls.

A pullback in interest rates also gave us a chance to lock in bullish gains on bonds — using call contracts for the iShares 20+ Year Treasury Bond Fund (TLT).

But even with the bear market rally, we still booked profits from a number of bearish plays.

Speculative tech stocks continue to trade lower as investors move capital out of risky plays and into more stable value stocks. This creates a great opportunity for us to have a balanced portfolio of positions — some bearish and some bullish.

The model currently holds a bit more bullish exposure, which positions us to take advantage of more positive seasonal trends.

Accelerated Income Model

The?Accelerated Income Model?collects income from individual stocks by selling put contracts. With this approach, we agree to buy shares of stock at a certain price, and we’re paid up front for our agreement.

This strategy is inherently bullish (for each individual stock we use). So it can be more challenging to generate positive returns during a bear market.

However, this conservative approach has a number of safety buffers built into each position. This helps us protect capital even during a negative period for the broad market.

When stocks fall quickly, these buffers can be overrun. In late April and early May, this scenario drove several of our stocks sharply lower, hurting performance.

But as the market has become more orderly, our income approach has been more predictable. Plus thanks to more fear and uncertainty, new positions can be set up with either more income for each transaction, or a wider safety buffer to help protect our capital.

During the fourth quarter, our income model recouped a good bit of the negative performance from earlier in the year. And while we still posted a loss near 9% for the year, this pullback is less than half of the decline for the S&P 500. And?much better?than the 33.1% decline for the Nasdaq composite.

I’m encouraged by the model’s positive performance during Q4. And looking forward to 2023, I expect many opportunities to generate more reliable (and safe) income payments.

As of Friday’s close, we have roughly 60% of the portfolio allocated to individual income plays, with 40% of our capital available for new opportunities.

Looking Forward…

Heading into the new year, there are a handful of important themes I’m watching:

• The energy crisis?— Global demand for oil, natural gas and refined products should continue to increase. Meanwhile, supplies are constrained. Companies in the energy sector should benefit from these dynamics.
• Interest rates / U.S. dollar?— Central banks around the world raising interest rates to fight inflation. As rates fluctuate, the U.S. dollar has started trading lower. This is good news for U.S. companies with international customers, and also for precious metals like gold and silver.
• Defense spending?— Russia’s invasion of Ukraine and rising tensions with China are making headlines. The U.S. will continue to spend on defense — helping to boost profits for contractors that supply the U.S. with missiles, planes, tanks and other defense systems.
• Technology?— While speculative tech stocks that?don’t?earn profits are still vulnerable, some of the more profitable tech stocks are starting to look attractive. I’ll be attending the?Consumer Electronics Show (CES)?next week to get a first-hand view of some of the new tech trends.
• Volatility?— Given the uncertainty and cross currents in today’s market, I expect a lot of back-and-forth trading in the first half of 2023. This requires us to be nimble and on top of shifting narratives. And it creates opportunity for short-term profits in both of our models.

There’s nothing fundamentally important about a date on a calendar. So just because we’re starting off a new year doesn’t mean the trends from?last year?are set to change.

But at the same time, many investors take time during the holidays to make adjustments to their investment plans. And this can cause certain areas of the market to pivot as we kick off a new year.

I’ll be watching the price action carefully. And as new trends and opportunities emerge I will be sure to keep you posted!

Our Positioning

As I mentioned earlier, our?Speculative Trading Program?has a bit more bullish exposure, but also has some bearish plays to balance out our account. The?Accelerated Income Model?holds a significant amount of cash, which gives us an opportunity to collect more income payments as the year gets started.

We continue to be in a bear market. And until this changes, our biggest priority is to?protect our capital?and minimize risk.

This means keeping a more balanced combination of bullish and bearish plays in our Speculative portfolio, and erring towards the side of safety when setting up new income plays.

In the Speculative portfolio, we’re holding bullish positions in energy plays like ConocoPhillips (COP), precious metal plays like the SPDR Gold Trust (GLD) and defense plays like Northrop Grumman (NOC).

We also have a handful of bearish plays in tech stocks like Nvidia (NVDA), Snowflake (SNOW) and Spotify (SPOT).

Our income plays are diversified across many different areas including energy — Occidental Petroleum (OXY), precious metals — Junior Gold Miners (GDXJ), materials — Cleveland Cliffs (CLF), and travel — Wynn Resorts (WYNN).

Please keep in mind these positions can change without notice. If you’re a subscriber to one of my trading models, you’ll receive an email (and optional text message) before I make any changes to my own personal position.

Thank You For Your Business

If you’re currently subscribed to one (or both) of my trading models, please know I am very thankful for your business!

If not, I’m still thankful for you… And I’d love to earn your business in the new year!

You can?subscribe to the?Speculative Trading Program?for a monthly price of $147.

The?Accelerated Income Model?has a monthly price of $97. (Links to both models in comments.)

Both subscriptions come with a 30-day refund period. And if you decide later that the service is not for you, I’m happy to refund any un-used portion of your subscription.

While 2022 was a challenging year for traditional “buy and hold” investors, our?Speculative Trading Program?proved that opportunities can be found even in challenging markets.

Of course past performance is no guarantee of future results. And all investing involves some level of risk. So please don’t use either of my models to invest capital you can’t afford to risk.

I do believe both of these strategies give us a unique advantage over traditional investment approaches. And this is why I invest my own family’s money in these tow strategies.

Here’s to growing and protecting your wealth in the New Year!

Zach