The Alpha Cut User Guide
Welcome to The Alpha Cut.
We practice disciplined, tactical, targeted market analysis that spans all sectors and asset classes.
What this service aims to provide is a methodology through which everyday investors can set entry and exit targets for stocks, commodities, currencies and bonds.
Every day, we monitor the market for changes in the rate of return, with an eye to identify the fastest-moving sectors, markets, and investing styles.
Once a week, we will take a CUT of the market – a list of a few particular stocks or Exchange Traded Funds within those trends – that our analysis shows are likely to generate ALPHA over the coming week.
That ALPHA CUT of the market will include current prices for those stocks or ETF’s, as well as our proprietary, volatility-based estimates for the TOP and BOTTOM of each one’s weekly price range.
The ALPHA CUT LIST will look like this:
The idea is simple.
For long positions, we want to target purchases near the bottom of their range - what we call their BOTTOM CUT.
Similarly, we want to target sales near the top of their range, which we call the TOP CUT.
For short positions, we want to do the opposite – target sales near the TOP CUT and target covering the position near the BOTTOM CUT.
While we are unlikely to recommend specific options due to reasons of compliance and volatility, in general it is a reasonable approach to target the appropriate type (calls for longs, puts for shorts) one month out and one strike price away.
Here’s an example.
On March 4th, the price of the SPDR Financial Sector Select ETF fell below its BOTTOM CUT, and we issued an alert at $32.77.
Four days later, the price regressed to the middle of the estimated range, and we alerted to close at $34.40 for a 4.6% return.
Options traders who opted to follow the alerts by purchasing calls one month out and one strike up (in this case, the April 16 $34 calls) posted gains of up to 112.7%, as per the chart below.
Occasionally throughout the week, we will send out one of these alerts if a member of our CUT LIST approaches its TOP CUT or BOTTOM CUT.
An alert signals a strong degree of conviction on our part that the stock in question will move in the projected direction before the week is up.
We will not alert on every such instance, however, and there will be occasions where some members of the CUT LIST do not reach either their TOP or BOTTOM CUT.
We also won’t win every position we alert…such is life.
But, we will take care to close all alerted positions on a regular basis, either when a price target is reached or a trend reaches its completion. And all of the alerts we do send will be recorded here for the sake of transparency and accountability.
We want to do well, and we want you to stay informed.
One other note we want to drive home is that the CUT LIST is simply a collection of stocks, ETF’s and other securities that show trending characteristics.
It is NOT a diversified portfolio, and should not be treated as such.
We are market analysts, not personal investment advisors, so we expect you to manage your own risk.
Markets can be volatile and unpredictable, and you have to be prepared to switch direction on a dime.
But that’s why we do what we do.
And we’re excited to be your guide.
Stay frosty,
The Alpha Cut Team