Speculative Tech Stocks Face a Double-Dose of Risk

Cloud stocks… Artificial intelligence plays… Autonomous driving technology… And many other speculative tech stocks…

They’re all facing two major risk factors.

And in today’s market, these speculative tech stocks could turn lower in a moments notice.

Investors who ignore these risks could wind up with major losses over the next several weeks.

But nimble traders who are willing to play both sides of the market could walk away with huge profits!

Let’s take a look at what’s on the horizon for high-value growth stocks.

Growth Stocks Enjoyed a Strong Q1

Many of the most popular growth stocks are having a great year.

• HubSpot Inc. (HUBS) is up 44% year-to-date.
• CloudFlare Inc. (NET) is up 40%.
• Nvidia Corp. (NVDA) is up 84%.
• Roblox Corp. (RBLX) is up 60%.
• Spotify Tech. (SPOT) is up 66%.
• Tesla Inc. (TSLA) is up 48%
• (Just to list a few of the names on my Bearish Watch List)

Part of the reason these stocks are on the move is the decline in long-term interest rates.

Investors are betting that the Fed will pause its rate hiking campaign in the next few months — and even cut rates before the end of the year. And based on these expectations, long-term interest rates have moved lower.

Whenever rates move lower, it creates an incentive for investors to buy growth stocks. Speculative tech stocks have been particularly attractive to investors this year.

That’s because when rates are lower, investors have less incentive to hold cash or generate profits now. After all, they can’t get much for the cash they hold today — or for cash paid to them from current dividends.

Instead, there is an incentive to take more risks — in search of higher long-term profits. Exactly what speculative tech stocks are supposed to offer.

But the higher the stock price for these speculative plays, the more risk investors take.

Now, with these speculative growth stocks higher and the economic engine sputtering, there’s much more risk of these stocks trading lower.

Why Speculative Tech Stocks Could Crater

Speculative tech stocks appear to be peaking, with two major risks on either side of this uncertain economy.

On one hand, if the economy remains strong, inflation will continue to be an issue.

This inflation will cause the Fed to continue to hike rates. And higher rates will effectively reverse the supportive backdrop that drove these speculative tech stocks higher.

On the other hand if the economy weakens that’s also bad news!

Yes, a weak economy will allow the Fed to lower interest rates. But it will also lead to lower profits… It will cause individuals and businesses to cut costs and spend less on technology… And it will make it more difficult for speculative tech stocks to raise the capital they need to stay in business.

In other words, these stocks are in trouble if the economy strengthens — and in trouble if the economy weakens.

They’re trading at high multiples (compared to expected earnings). And now there are catalysts on the horizon that could quickly send these speculative tech stocks lower.

Buying Puts to Profit From the Decline

As an active trader, I’m setting up bearish positions on stocks that I expect to trade lower. This way I can profit from the decline in some of the overvalued stocks that are likely to fall.

Buying in-the-money put option contracts is my favorite way to profit from situations like this.

These option contracts increase in value when stocks trade lower. And they lose value when stocks trade higher.

I like these specific put contracts because I can get a high “delta” — or dollar-for-dollar movement — when the stock moves in my favor. For example, if my stock drops by $20 per share, I expect to receive very close to $20.00 per share in profit.

On the other hand, when stocks move against my trade, in-the-money put option contracts tend to lose money more slowly. So a $20 movement against my position might result in a loss of $14 or $16 per share.

This way, we’re putting statistics in our favor — on top of selecting stocks that should have a high-probability of success.

Just this morning, I set up a new bearish play on Tesla Inc. (TSLA).

I purchased put option contracts in my Speculative Trading Program.

Now, if TSLA trades sharply lower, my position will generate a profit.

I’ve got my eye on a number of other speculative tech stocks with plenty of room to fall.

I’d love to share my actual trades with you — and send you trade alerts before I set up the trades in my own account.

Consider signing up for my Speculative Trading Program today so you can piggyback my own personal trades.

>>More info on the Speculative Trading Program here<<

Here’s to growing and protecting your wealth!

Zach