Chief Investment Strategist, The Freeport Society
Get out of the pool!
Get in the pool!
Get out of the pool!
Get in the pool!
Seriously, that’s no way to grow your wealth.
It’s certainly not how the smart money does it.
The smart money knows to hold onto their core positions – float on their pool tube, if you will – and then to throw out lines when the water gets rough.
Equally, investing should be your core wealth building tool. Your pool tube, if you will.
But trading is how you add value without adding extra risk.
This is critical to understand now more than ever before because volatility is the name of the game in the markets.
There are dozens of reasons for this…
Trade wars…
Possible recession…
Worse still, possible stagflation…
Take your pick, stocks have been see-sawing wildly, dipping the 10% into correction territory… zooming back up… crashing back down.
We’re on the Vomit Comet for sure.
(That’s the nickname astronauts use when talking about their training aircraft, that simulates weightlessness.)
But that’s exactly how Freeport Society friend Jonathan Rose – a master trader – likes it.
He used the recent stock market selloff to give his Masters in Trading subscribers the chance to close out gains of 61%…74%… and 78% while stocks were tanking. Their longest holding time for these trades was three days.
Jonathan started as a floor trader at the Chicago Mercantile Exchange in 1977.
He traded futures on the Nasdaq and S&P 500 during the dot-com boom and bust.
In 2011, he rented a seat on the floor of the Chicago Board Options Exchange… and became a market maker.
Finally, in 2015, he found his true passion – teaching individual investors how to trade like the pros.
That’s why I hauled Jonathan into an interview, so he could explain how he’s approaching today’s market volatility… and why.
It’s a fascinating discussion that concludes with a gratis options trade for you.
Watch this week’s video now.
If you want to see how Jonathan spots trades in real-time, you can join him – for free – every weekday morning at 11 a.m. ET on Masters in Trading Live.
On these livestreams, you’ll get…
· A professional trader’s morning check-in
· Insights into what sectors are moving the market
· Real-time setups you can follow in your account
If you’re interested in learning how to trade like a pro… and profit from volatility with trades like these… unlock Jonathan’s daily volatility playbook here (for free).
To life, liberty, and the pursuit of wealth.
Transcript
Charles Sizemore: Hi. Charles Sizemore, Chief Investment Strategist of The Freeport Society. Today I have the master of trading himself, Mr. Jonathan Rose, on here to speak with me.
Jonathan, welcome.
Jonathan Rose: Hey, Charles, thanks for having me. Excited to be here.
Charles Sizemore: Thanks for being on. I have you on for a very specific reason. As you are very well aware, the market’s been in correction territory. As I’m recording this, strictly speaking, we are above correction territory, but we’ve been flirting with it. We actually went below it for a couple days and we’ve been flirting with that ever since. This is a volatile time to be invested. I don’t really need to make a laundry list of reasons why, but to summarize it comes down to tariffs, macro outlook. Are we looking at the possibility of a recession? Possibly stagflation. There’s just a lot of question marks right now and it’s having its impact on the market.
But I know you. I know you’re a short term trader. I know that the direction of market doesn’t necessarily bother you. How have you been doing? How have you been trading through this volatile patch?
Jonathan Rose: Well, it’s interesting. I come from, we’ll say in the trading world, the streets of Chicago, so I come from the pits and trading places, and people talking with their hands and stuff.
Charles Sizemore: You description almost makes it sound like gladiatorial combat, like the pits where we fight to the death. I know that’s metaphorical, but it’s kind of true, too.
Jonathan Rose: Kind of true, too. Certainly, before computers. If we’re negotiating prices, we’re doing it face-to-face. If somebody’s not going to honor their prices, there was trouble down in the pit. Gladiatorial? Sometimes. I wasn’t involved, but I was certainly intimidated at times. Nevertheless, that’s certainly not the topic.
As a trader, when markets are going up and when that fear gouge, the VIX is just going down, there’s really not much to do. It’s kind of quiet. It’s just get out of the way, and buy and hold does really well. You start to see covered call strategies. But what traders really want is uncertainty. That’s volatility because uncertainty, for the trading community, for professionals, brings opportunity.
Right now, yeah, longterm investors are struggling, but traders rejoice. This is the time where it’s go get while the getting is good is what we like to say when volatility pops. Right now, that’s what’s going on.
Charles Sizemore: Let’s analyze that, let’s dig deeper into it. You trade mostly options, that’s your world. Explain to the viewers how volatility effects option pricing, because the returns on options can be a function of various things. It could be a function of the performance of the underlying security. If you buy a stock option, for example, and the value of the stock goes higher. If that goes into the money for your option, then you can make money based on that. But that’s not necessarily where the action is.
Where options get more interesting is the volatility component itself. Can you walk us through that?
Jonathan Rose: Sure. Great question. A lot to unravel in that question. I’m going to take the last part of it, because if I start with the first part, I’m going to forget the last part.
As investors, if we take a step back, there’s really two different choices that you have in the overall market. You could bet on something going higher or lower. You can bet on Apple trading higher or lower. The other bet that you can make is you can bet on movement and you can bet on volatility. The market might price in $10 of movement for Apple over the next 30 days. An option trader, if they want to trade volatility, they determine is that $10 appropriate? Is that a good amount to expect more movement in Apple?
As far as being an option trader or a stock trader, I’m a trader. I don’t think that there’s a difference between stocks and options. Options are just a derivative of stock. In my world, if I look at someone trading Apple, they can buy or sell Apple. But without the ability or the familiarity with options and the understanding of them, you’re really putting yourself at a disadvantage because there’s millions of permutations you can do to express an opinion on Apple. But if you’re just willing to buy the stock, you can really only express it in one way. That’s really the difference.
Options are just a derivative of stock. What we’re able to do in the ability to trade options is we’re a lot more nimble, because what we’re looking for are trades that don’t add risk to people’s core long term portfolio. Because when the stock market gets hit and volatility spikes, we’re all losing money in our long term IRAs. I think, “Here’s how I could add value. Let’s look for trades that we can potentially make money, but we’re not adding risk to our overall portfolio.” We’re not just buying Apple, and IBM, and Nvidia because the market’s going lower and cost averaging. No. We’re trying to be creative.
Charles Sizemore: You got my attention with something. You basically described diversification. Diversification is an overused word. It’s also a poorly understood word because a lot of people think, “Hey, I have five mutual funds. That means I’m diversified.” Well, you’re not diversified if they all own the same stuff.
If you have a portfolio of 100 stocks, but they’re all fairly correlated to each other, again, you’re not really diversified. Actual diversification is having strategies, you mentioned copper. It’s commodities.
Jonathan Rose: Commodities, sure.
Charles Sizemore: Or options, or whatever. It could even be different stock trading techniques. Whatever it is you’re doing, it moves independently of the rest of the portfolio. It doesn’t necessarily have to move inverse. If the market’s down, yours doesn’t have to automatically go up because in situations like that, often times that means that’s a very expensive hedge that’s going to lose money when the market is going higher. But things are just moving independently of the market. You don’t have to have all of your eggs in an S&P 500-style long, lonely basket. You can do other things that moved independently.
Now you mentioned copper. Now, this is really interesting. This is near-and-dear to us at The Freeport Society because dollar devaluation is one of the macro themes that we cover. We’ve seen action in gold. Gold’s been an exceptionally strong asset for going on two years now. We’re up about 50% in our gold position that we put on when we launched the newsletter at the end of 2023.
I’m still really bullish on gold, and for reasons that don’t really need to be explained. Inflation is really not going away any time soon. In fact, it’s actually reigniting. Macro instability is really the highest it’s been in years. All that makes sense.
What you’re saying is you found opportunities even away from that, and you mentioned copper. Let’s talk about that.
Jonathan Rose: Yeah. By the way, great trade in gold. I agree, to stay long gold. When a position like that, that you’re up a ton of money, it starts going in your direction, it takes confidence to hold that trade. That’s I think a real great value, just sharing with everybody, “Great, we’re up a bunch of money. But you know what? Nothing has changed, we still like that position.”
Charles Sizemore: And, Jonathan, ask yourself the question. If I didn’t have exposure to this asset now, would I want exposure if I was starting with a clean slate?
If your answer is yes, then why would you sell? Just stay long.
Jonathan Rose: Absolutely. It’s one lesson to hear, a very difficult thing to do, because it does take a lot of confidence to stay in a position.
Where we do things a little bit differently, especially now when volatility has picked up, we too believe gold is going to go higher. The world is looking at gold, it’s on the front page of newspapers. People are talking about gold. What we would like to do is say, “Okay, if gold’s going to go higher, what is going to be dragged along with it?” Gold versus silver, that’s one of the oldest correlated relationships. Instead of being long gold, which we’re still very bullish, we’re making plays in silver. We’re looking at silver miners. We’re long a company called Paas, P-A-A-S. We’re long silver.
But we’re also long some of the other industrial metals as well. I mentioned copper. The cash price of copper is up 20% in 2025.
Charles Sizemore: Now, that’s really interesting, because Dr. Copper, as they call it, is an economic indicator. Usually, copper tracks the direction of the economy, but we’re seeing a divergence there. Where a lot of the expectations are growth is actually slowing due to, well, due to a host of factors, but the tariffs being of course part of that. Yet, copper is really rallying hard. That’s a really interesting trade.
Jonathan Rose: Yeah. Copper is rallying so hard, which is the cash metal. But then we look at, okay, if copper was four and it’s now five three months later, which companies are going to benefit by the price of copper rising so much? What we try to do is we try to anticipate these kind of moves because we know what’s going on with the underlying cash metal, which is going to drive the price of a copper company.
We’re not really looking to make any kind of drastic longterm calls. We’re just looking at what’s going on in the market right now. Right now, gold is-
Charles Sizemore: That’s great. I want to comment on that because right now, the market is wobbly. There’s a lot of uncertainty. It’s not like when you initiate a position, you’re married to it. You enter this position based on your expectations of riding a short term trend higher, or perhaps is a mean reversion trade, whatever your style is. Every trader is going to be different there.
But the key is you’re looking at a short term window. You’re looking at something measured in, it could be as little as minutes or hours, it could be days or weeks, but you’re looking at a short term window. You’re not looking at buying something you’re going to hold for the next 20 years. That’s important if we’re in a market correction that could snowball into a bear market. We haven’t had a proper bear market in years, we’re probably due for one. If the stocks are down roughly 10%, if they fall another 10%, you’re in a bear market. But if you’re doing short term trades, whether it’s copper or, whatever, Pokemon cards, that’s okay. You can still eke out consistent, good profits because it’s a numbers game. You’re trading, you’re rinsing, you’re repeating, and you’re following those short term trends irrespective of what’s going on in the market.
Jonathan Rose: I think a really good exercise for people to do in this kind of environment is what would happen if the markets are down 5%, are down another 10%? Which is in the realm of possibility.
Whenever we’re doing trades, really always, but it really comes to the surface in an environment like this. Don’t add risk. If you are long and strong tech, great. Keep your position, try to find other playgrounds to play in. Try to think that, if the market is down 5%, well, gold. Gold will continue to do well if the market’s down 5%. I think that gold will do fine if the market’s up 5%. But those are the trades that we’re looking at. We don’t want to just, in this example, keep buying tech and keep buying tech. Yes, when it turns around, our longterm portfolios are going to start making money again. But right now, it’s insurance, it’s protection. Its things can happen. How can we really live to trade another day? Or even better yet, maybe you can make money with this volatility and add to those core holdings that you like so much.
Charles Sizemore: This is what I like about your style, because you approach this similar to the way I do in the sense that I’m not the guy that’s ever going to say, “Get out of the pool! Sell everything. Go to cash. Get back in!” That’s not my style. I’ve never really met anybody whose made money with extreme calls. Get in, get out. My view and this is very similar to what you just said, is look, you have your core holdings and those core holdings should include stocks, it should include gold and precious metals. It could include other things like real estate. Everyone’s going to be a little different.
But you have your core longterm holdings that you may be holding for years or decades. But around the edges, you can take a little bit of cash, you can take a little bit off the table and you can diversify. You can do things around the edges to eke out profits when the market’s going to wrong way. You can preserve your capital that way, live to trade another day. You’re really adding value around the edges, which is fine. That’s how the pros do it.
I’ve never met, well, I can’t say I’ve never met, but I haven’t met very many institutional investors who are willing to go completely in, completely out. 100% invested. On margin, 200% invested. Or no, zero. Now I’m short. I’ve never seen anybody consistently make money like that. It’s the best way to do it is a core with your satellite positions. You have your core positions in place, but you’re adding a ton of value with your shorter term satellite positions there. That’s what you’re telling me and I love it.
Jonathan Rose: Yeah. It really comes down to what we do every day. How Masters in Trading works is I get on and do a live show every day, 11:00 AM Eastern time, where it’s free, it’s on YouTube. Everybody gets there 10 minutes early and we’re all saying good morning in the chat. I’m just going over the market each day. We’re looking at volatility is coming out of the market right now, the market’s trying to rally. That’s what we were talking about today. We were sharing different trade ideas. We were talking about copper. We were talking about what we’re looking at. What we’re looking at for when are we going to flip the switch from turning bullish to more of the bearish environment right now.
Charles Sizemore: By the way, Jonathan, I do want to point something out. I do want to sing your praises a little bit for everybody viewing this. Freeport Alpha, my trading service, has been around for a little over a year. We launched it a little over a year ago. Two out of the three top performing positions in Freeport Alpha were yours and not mine. Thank you, and my readers thank you. You gave us two really solid options positions. You knocked it out of the park with 127% in one and 100 in the other. Bravo.
Jonathan Rose: The second one, I’m going to call it team play because that was a private prison play going into Trump winning, and that was a talk, we were looking for something that would actually work well with the election. That’s not how I trade. Charles, I’m going to give you a big assist on that one, because you forced me into thinking, “What would work in this kind of environment?” A lot of trading too, I’ll call that common sense trading.
Copper, up 20% in the first three months. What companies are going to do well with a higher copper price? We’re not trying to save the world right here, we’re just trying to make some money in this downturn.
Charles Sizemore: That’s right. Stay afloat, live to trade another day.
Well, Jonathan, this has all been fantastic. We covered a lot of good stuff. I know everybody watching this would probably love a takeaway. I would say is there a particular trade that you would part here with?
Jonathan Rose: Yeah. Let’s leave you with this. I’m going to put two charts up on the screen. One is going to show you the price of copper. This is cash copper. Gone from four to $5. Then we’re just looking for copper companies that will benefit from that. I like Teck, T-E-C-K. The ticker, let me just check last price while we’re on here. Last price, I got 42.45. I like buying the stock. If you’re considering an options play, what about the May, 45 calls? Right now, they’re offered for $1.90. I’d buy those up to $2. There’s a nice trade for you to follow copper. Teck, and the 45 calls, buying up to $2.
Charles Sizemore: Well, for all the readers there, I always have to put out the usual caveats. Always understand the risk before you trade, do your own homework and all of that. But Jonathan has given us a very excellent starting point here.
Jonathan, thanks for coming on today. I really enjoyed this. It’s always a pleasure to discuss the markets with you. It’s nice to see that you’re trading through this patch of volatility and doing well for your viewers. I highly recommend to everybody watching this that you do tune in to Masters in Trading. It is excellent. Jonathan will metaphorically hold your hand. He can’t reach through the screen.
He does what he’s doing here. He just talks you through his thinking, talks you through the trades. It’s a lesson. It’s an educational experience. I highly recommend it. If you want to be a better trader, you want to learn how to live to trade another day, check it out.
Jonathan Rose: Charles, thank you so much for having me, too. If anybody’s got questions on that Teck trade, join me live, 11:00 AM Eastern time.
Charles Sizemore: There you go. Well, that is going to wrap it up for today. Jonathan, thanks again. To our viewers, we’ll catch you next time. To life, liberty, and the pursuit of wealth, this is Charles Sizemore signing off.