One of the best income strategies in the world involves a market some investors completely ignore. It allows individual investors to generate income from the best companies in the world without buying stocks most of the time.[ad#Google Adsense 336×280-IA]I’ve been recommending trades in this market for over a year.
And so far, the results have been astounding — each of the 52 trades I’ve closed has been a winner.
I don’t want to beat around the bush or make this sound like some super-secret investing strategy only I can tell you about.
I am talking about selling options.
Now, before you decide that you never want to try options trading, let me show you what a recent subscriber to my Income Trader newsletter, which focuses on selling options, had to say about my strategy:
“When I first started using [Amber’s] picks, my goal was to earn $500. Then I quickly realized I can earn at least $1,000 per month. I use the profits to buy more… Not only are your picks excellent with low risk, it teaches you to look for other options on your own, which I have done.”
— Nathan S., West Long Branch
I know you’re probably thinking that to be able to make that much money a month, there must be enormous risk involved.
While it is a fact that 80% to 90% of options buyers lose money, there’s a flip side… It means that 80% to 90% of options sellers make money. And that’s where I like to focus.
As you may already know, “put” options give buyers the right — but not the obligation — to sell a stock at a specified price before a specified date.
When we sell a put contract, we receive cash, or what I call Instant Income, upfront.
Selling a put means we’re expecting the stock not to fall to a certain price. If it does, for every contract we sell, we have to buy 100 shares at that price (more on why that’s not a bad thing in a minute).
If the stock goes up, or doesn’t sink to the price we specified, we pocket that upfront money as pure profit.
All 52 of my recommended trades have made gains so far this year. You can review all my closed trades here.
While I probably won’t have a perfect record forever, every trade we’ve closed so far has been a winner. And on average, we’ve generated 7.4% in Instant Income every 56 days on our money since February 2013 — an average annualized gain of 48.2%. If an investor had sold 10 contracts on each trade, they would have pocketed a total of $45,100 in Instant Income since the service launched a little over a year ago.
So what’s the downside risk? You can end up buying shares of the underlying stock if they fall below the strike price.
For example, let’s say a stock falls 8% in a single day due to an earnings miss. Assuming shares fall below the option’s strike price, investors that sold puts might be required to buy the stock for more than its current price.
But, my strategy has an answer to that potential problem…
My risk analysis goes deeper — and into the companies themselves. I always make sure that we are selling options on stocks we wouldn’t mind having in our portfolios.
When this happens, you get the opportunity to buy shares of a company you want to own anyway — just at a lower price than the market was offering when you sold the put. You’ll even know the price upfront before you enter the trade.
Of course, this does not happen often. In my experience, more than 85% of options expire worthless, meaning we don’t have to buy shares, and the Instant Income we receive when selling puts is pure profit.
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Source: Dividend Opportunities