What is “Stansberry Alpha?”

By Travis Johnson, Stock Gumshoe, June 27, 2014

[what follows was originally published in 2012 and 2013, it has not been updated (the pitch for the service remains similar, presumably the strategy does as well) but is being brought up to the top of the page because so many readers are asking about it this week.]

It appears that Porter Stansberry is pushing for new subscribers to his Stansberry Alpha options trading service again, the first time he’s pushed very hard for this since the Winter. The spiel this time is that Porter is FURIOUS that brokers are making it tough for people to follow his strategy, and that therefore those people are angry at Porter, so he’s releasing a new special report on how to follow his strategy in more detail, and how to get broker permission.

I’ve written about Stansberry Alpha before, but it was only in the Friday File and that was way back in December — that previous ad of his gave more clues about the specific strategy, and I assume that hasn’t changed, but I thought folks might be interested in seeing how the logic of it works so I’m re-printing that Friday File piece from last December here for everyone.

Porter does not share any hints or clues about the next company that he will use as a “Stansberry Alpha” Trade, but I run through the example of Chicago Bridge & Iron below (using numbers from last December) and he has said that his focus is on companies with blue chip assets that he’s very comfortable with buying — stocks that he thinks have very limited downside, in his opinion, and by way of example (and proof of success) he mentions having recommended similar “Alpha” trades in Intel, Microsoft and Wal-Mart since the service began about eight months ago. So whatever he’s choosing next is likely to be a “blue chip” type company, and, as you’ll see in my comments below, he’s essentially taking the risk of the stock cratering and using the money he receives for taking that risk to make a bet on the stock climbing — in effect, a “double down” of a bet on one underlying stock.

What follows has not been updated in any way since it first appeared on December 12, 2012:

Here’s how Porter has been pitching this new trading service, which is priced at $2,500 a year:

Porter Stansberry’s ALPHA* Strategy

“A Little-Known Secret of the Options Market that’s so Profitable… We’ve Never Been Willing to Share It…

“*ALPHA has been called “The Single Greatest Investing Secret” in the world’s markets. It allows investors to earn far more than normal stock investments, while actually taking less risk. Most academics will tell you it’s impossible. But the proof is right here…”

You can see the whole presentation here if you’re interested, I won’t go into every detail because he’s not teasing a specific trade on a specific stock this time around, he’s teasing a strategy that he thinks he’ll be able to recommend monthly, over and over, to profit from an “anomaly” in the markets. I’ll just share a wee bit here to give you a taste:

“Alpha is a critical anomaly that could hand you 50% to 100% gains — over and over again — with less risk than almost any trade in the world.

“This anomaly cannot be explained by the “efficient market hypothesis” ….

“I love buying world-dominating, capital-efficient businesses at deep discounts… what I call “no risk” prices.

“I’m talking about companies like Intel, Johnson & Johnson, Exelon, and Hershey.

“These are the kinds of solid stocks you want to grab when the market irrationally sells off… which it does every so often….

“… what if there was a way you could make 50% to 100% gains — every 12 months or so — on safe, conservative stocks like Hershey?

“What’s more… What if you could make these big gains, while taking LESS risk than a regular shareholder?”

So you can see why people are asking — sounds pretty awesome, right?

He does go on to describe the strategy in very general terms, and to say that it’s best for those who already have a decent pile of capital to use (he says $25,000 is a decent minimum account balance) … and that you’ll need approval from your broker, and some brokers won’t let you use this strategy. It’s some kind of options trade on the big, “blue chip” stocks (though he doesn’t use that term, I don’t think) that Porter often recommends in his regular newsletter (and in some other relatively conservative letters, like Ferris’ 12% Letter), but it is apparently not just the selling of puts, which he has tried to build newsletters around before. Here’s a bit more:

“Selling puts is still a great strategy today. You can pile up lots of single- and double-digit returns. You can inch your way to a great year….

“But here’s the thing: You won’t hit home runs just selling puts right now.

“To make outsized gains on a single trade, you need something else… You need an edge in the market.”

That edge? Well, he hints at it with talk about his first recommendation, an “Alpha” trade on Chicago Bridge & Iron (CBI):

Are you ge