One of the best income strategies in the world involves a “glitch” in the financial markets.
It allows individual investors to generate “Instant Income” from the best companies in the world.
The best part, more than 80% of the time, in my experience, investors don’t have to buy a single share of stock.
I’ve been using this strategy to deliver winning income trades for readers during the past few months.[ad#Google Adsense 336×280-IA]So far, the results have been great — my strategy has allowed us to enjoy thousands of dollars in “Instant Income.”
For example, we made $2,700 “Instant Income” from a $6,400 “down payment” on MasterCard (NYSE: MA) in July 2012.
That’s an immediate return of 42.2%.
Last September, I collected $710 from Amazon (Nasdaq: AMZN), a company that’s never paid a single dividend.
And last October, I collected $125 in “Instant Income” from Coach (NYSE: COH) for every $880 I set aside.
It’s clear that this the strategy has a lot of income potential. Yet, less than 25% of investors are taking advantage of the “glitch” to generate income.
And I think I know why….
My “Instant Income” strategy involves one of the most misunderstood corners of the investing world: the options market. Many people avoid options because they have a reputation for being risky and complex, but the strategies I use are safer and simpler than you might imagine. In fact, my strategy takes advantage of risk-takers to generate steady income.
Many options traders lose money for one simple reason — they’re on the wrong side of the trade. In fact, more than 80% of options are worthless when they expire.
That may sound like a bad thing, but it’s actually what makes my strategy successful. It involves selling, not buying options.
When we sell an option, we get money deposited in our brokerage accounts. It’s called a premium, but I like to call it “Instant Income.” We get paid upfront for options that more than likely will expire worthless in a few months — meaning we don’t have to buy shares and our “Instant Income” is pure profit.
It’s this “glitch” in the options market that allows us to generate steady income from selling options on high-quality, undervalued stocks.
For example, with one option strategy I use, selling “put” options, one of two things can happen.
1. You receive “Instant Income” when you sell the option and keep it as pure profit — without ever having to buy a stock.
2. You get the opportunity to buy shares of a company you would want to own anyway — but at a discounted price. You’ll even know the price up front before you ever make the trade.
Let me show you a recent example…
On Jan. 11, I advised readers sell February $48 puts on Phillips 66 (NYSE: PSX) for a premium of $1.15. That’s a put that expires on Feb. 16 and pays sellers a $1.15 per-share premium, or $115 per contract (a contract is for 100 shares). If shares of Phillips trade below $48, we’ll be shareholders at a cost basis of $46.85 a share ($48 – $1.15, our premium).
When I sold the put, shares were trading at about $50.70, so our $46.85 cost basis would represent a 7.6% discount. Phillips 66 also sported an attractive price-to-earnings (P/E) ratio below 8.
Based on the oil refiner’s solid fundamentals, I’m more than comfortable owning the stock. But by selling puts, I can collect “Instant Income” without having to purchase shares outright. And if Phillips 66 trades below $48 before the options expire, I’ll own shares at dirt-chap prices.
It’s been four weeks since I recommended that trade, and the put option I recommended is more than likely going to expire worthless. Phillips 66 would need to fall more than 25% in the next four trading days before we would have to buy, or be put, the shares.
This means the $115 in “Instant Income” per contract should represent our profit on a trade that lasted only five weeks.
— Amber Hestla-Barnhart
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