Last week, I explained “How to Turn Market Mayhem into Quick Profits.” I used two recent call option trades to illustrate how you can make fast money from Wall Street’s tendency to overreact to recent events (a call option increases in value when the price of the underlying security goes up).

To recap, at the start of last month I doubled my money on Logitech International (NSDQ: LOGI) in only three weeks. A few weeks later I closed out a trade on Discover Financial Services (NSYE: DFS) for a 100% profit in just four days.

Since then, I have been asked if those examples are typical or are they statistical outliers that don’t really prove anything. That’s a fair question since gains of that size in such a short period of time are rare.

At the heart of my Mayhem Trader options trading service is a simple belief: Wall Street has become too dependent on algorithms for its stock selection process. And since those algorithms are essentially the same, they tend to exaggerate the price movement of the stocks they identify.

WATCH THIS VIDEO: The Rise of Artificial Intelligence, Algorithms, and “Robo-Trading” on Wall Street

You need look no further than memory device manufacturer NVIDIA (NSDQ: NVDA) for proof of that. Last October, I added NVIDIA to the Personal Finance Growth Portfolio when it was trading near $115. Last week, it broke above $470 for 308% gain in just ten months!

The explanation for NVIDIA’s rapid rise is simple. At the start of this year, Wall Street decided that artificial intelligence (AI) is the wave of the future. Then, its algorithms agreed that NVIDIA was the best of the AI stocks. After that, they all started buying it at the same time.

Plowed Under

I must admit, I was not anticipating a movement of that magnitude when I bought NVIDIA last fall. I only knew that it appeared undervalued and was likely to rebound strongly once the stock market resumed an upward trajectory.

Now, I believe NVIDIA has become overvalued in the near term and is unlikely to maintain its torrid pace. It will take several quarters for its revenue and earnings to catch up to its share price.

That said, I am not going to sell it. NVIDIA is the best at what it does, so it is only a matter of time until its operating metrics justify its high share price. I’ll wait.

However, there are other businesses that are overvalued and cannot justify their high multiples to sales and earnings. In fact, I just booked a 367% gain on one of them last week.

Four months ago, I opened a put option position on auto parts conglomerate Driven Brands (NSDQ: DRVN). The company relies heavily on debt to finance acquisitions, which is a risky strategy while the Fed is raising interest rates.

A put option increases in value when the price of the underlying security goes down. So, I was betting on the company to disappoint Wall Street when it released its Q2 results on August 2.

Actually, the second quarter numbers were decent. But it was its guidance for the rest of this year that got Wall Street’s attention. Driven Brands reduced its estimate for full-year adjusted earnings per share by 24%.

That day, its share price fell more than 40%. Once all the algorithms on Wall Street decided it was time to sell, Driven Brands got plowed under and we booked a huge gain.

Smart Money?

The sudden popularity of artificial intelligence is not limited to the companies in that business. Now, Wall Street is incorporating artificial intelligence into its stock selection process.

Instead of just crunching numbers, these algorithms will also try to think like a professional portfolio manager. That’s great news for me because most portfolio managers think alike.

With few exceptions, they all went to the same business schools where they were taught the same lessons in finance and economics. For that reason, they tend to gravitate towards the same group of stocks.

And when they decide it’s time to make a change, the results can be staggering. They drove NVIDIA up to unimaginable heights in less than a year while crushing Driven Brands in a single day.

If you can correctly anticipate which stocks will fall in and out of favor on Wall Street, you can beat them to the punch. And that is exactly what my Mayhem Trader stock screener is designed to do.

I profited from both of those moves, and I believe there will be many more opportunities like that to come. And the good news for you is there is a way you can profit from them, too.

Editor’s Note: My colleague Jim Pearce doesn’t worry about market mayhem…he makes money from it.

Jim Pearce is chief investment strategist of our premium trading service, Mayhem Trader. Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.

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