Market Report: Investing in International Stocks and Options: When in Doubt, Follow the Money... When in Moscow, Invest in the RSX

Today, the American Market has put in two whole good days in a row, as the players try to game the coming Fed announcement. Already, I have seen arguments bandied about on Wall Street demanding 25 basis points as a baseline minimum and pushing for 50.

Their logic? A quarter-point cut is already priced in. If the Fed goes lame-o on us, we will simply have to sell shares. And if they really want to stimulate things, it’s just got to be the “Full Monty”: a half-point cut.

The plunging dollar? $95 oil? Skyrocketing real inflation (as in the costs average folks pay to get through the monthly roundelay of mortgage, electric, gas bill and water, minimum credit card payouts, gas for Mom’s taxi and some food somewhere in all that)?

Wall Street doesn’t really care too terribly much about all that, at least not this week. Heck, some CEOs even love the idea of borrowing cheap and paying back cheaper. Customers over a barrel, you say? Define customer.

You see, most of the major players at the top, the blue-chip mega-cap CEOs, who can really move Washington off the dime, are so internationally diversified that only a total crash here in the States can screw them up. A long slow slog just creates interesting arbitrage situations between various global markets and currencies.

There are, of course, two basic ways to play this situation. In WaveStrength Options Weekly, we have asked readers to try for a balanced portfolio with a selection of both long and short plays.

The idea here is to have calls against the strongest candidates. (I note that even during this confused stretch, WOW calls against L3 (LLL: NYSE) have gained 86% over the past 60 days.) On the other side of the ledger, we are now recommending puts against weaker players. In the past few weeks, that has meant puts against Kohls (KSS: NYSE) and United Parcel Service (UPS: NYSE). Currently, these are up 16% and 8%.

Taipan Trader-style plays have been set up a little differently: Here we follow the money that is flowing out of the U.S. and into various foreign markets. What makes the method really cool is that we don’t actually have to move outside U.S. exchanges to do it.

Instead, we have focused (with one exception) on buying hedged sets of call and put options against entire overseas indexes. So far, nine out of 10 of these baskets have made money. Lately, we have seen several of these indexes shoot up (well beyond the gains we’ve seen here in the States, I might add).

Some examples: The iShares MSCI Brazil ETF (EWZ) is running up again today putting on some 2.23%, driving the Taipan Trader basket against same to 128% gains in just under 60 days. (This includes the losses on the safety puts: the leading calls are actually up 147%!)

Now that I glance at the ticker, I see that we have modeled 10 plays of this nature, with only one going negative a mere 7%. All told, the series has managed an average gain 104% and a cumulative gain of 1043% all without incurring excess risk (that’s what the hedging puts were for) and without ever actually leaving the security of U.S. trading rules.

This week: WOW readers can look forward to another protective put, most probably against U.S. banks, while folks who are following the Taipan Trader series should take a gander at Moscow’s biggest and boldest players. Specifically, I will be digging into the possibilities offered by Market Vectors’ Russian ETF, the RSX, which has put on more than 11% over the past six trading days.

Adam