We’re about to get a pay raise.
In my Advanced Income service, we use a simple, safe strategy to generate regular payouts from the market. And right now, the payouts are set to jump much higher. Let me explain…
Our Advanced Income strategy is simple. You buy a high-quality stock at a cheap price and then sell someone else the right to buy the stock from you at a higher price. You do that by selling a call option.
You collect cash upfront for selling that call option, and the money appears in your account immediately. For years, I’ve used this strategy (selling “covered calls”) in my own portfolio, with clients’ money, and with my readers to generate income streams of 10%-20%. I’ve even called it the “single-best income-producing strategy ever created.”[ad#Google Adsense 336×280-IA]This strategy works best when options are expensive.
The thing is, options have not been expensive recently.
They’ve been downright cheap.
But I think that’s about to change…
A large part of the premium we get paid for selling calls is based on the market’s perception of volatility.
When volatility shrinks, option premiums deflate. As volatility increases, option premiums inflate.
But by the look of the following chart, volatility may be ready to explode higher. Take a look…
As DailyWealth editor in chief Brian Hunt has pointed out, one thing investors can always count on is periods of low volatility following periods of high volatility… and vice versa. When things look rosy, a “flash crash,” credit crisis, or more bad news out of Europe always comes along to scare the pants off investors again.
Over the past five months, the Volatility Index (or “VIX”) has dropped almost 60%. Meanwhile, stocks have been climbing steadily higher. So it’s been tough to capture high rates of income without taking on high levels of risk.
Over the past week, however, the Volatility Index has stopped falling… and started showing signs of life. This recent action increases the likelihood that the volatility contraction we’ve seen over the past five months has ended… and that we’re entering a period of increasing volatility… and higher option premiums.
Typically, volatility increases as stock prices fall. We saw this happen twice last year. Both times, large spikes in the VIX coincided with steep declines in the stock market.
So we have to be prepared for lower stock prices over the short term. But we can look forward to higher rates of income from selling options. I’ll be looking to use this strategy on low-risk stocks – like tech giants Microsoft, Intel, and Cisco – and cheap gold producers.
Even when things are relatively calm, my simple options strategy can generate 10%-20% a year. When volatility spikes, option sellers can expect a healthy raise.
Best regards and good trading,
— Jeff Clark
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Source: Daily Wealth