Despite the recent rally in energy shares, it’s continuing to look bleak out there. Most shares in the energy sector are still down 20% to 50% from their highs.

But one of the best things about a bear market is that it provides the opportunity to generate income from high-quality options plays.

[ad#Google Adsense 336×280-IA]Plus, the recent volatility is doing wonders for premiums, money you receive or pay when you engage in an options trade.

It’s time to jump on the bandwagon of this unique and highly effective way to generate income.

The only potential “downside”?

You might just own some great companies at bargain-basement prices.

Working Your Options
Just a few months ago, I wrote about how the crash in energy prices was presenting an exceptional opportunity to sell put options on quality shares and rake in some quick cash.

The timing was great, as energy shares have rallied since that point. But things are still looking good for options, and there’s still a lot of play in this sector.

One of my colleagues, Lee Lowell, has made a career out of generating put-selling premiums for his readers – winning more than 90% of the time. A track record like Lee’s is all about picking the right stock.

For example, Exxon Mobil’s (XOM) put is paying you more than $1.15 per share to give you the ability to either own the shares at $70 (that’s more than $17 below where they’re trading) or pocket a healthy $1,150 for your efforts, based on a 10-contract trade.Today, you can have your pick of the energy sector when it comes to where you want to generate income.

And check out Chesapeake Energy (CHK). Insiders are going crazy on the shares at levels close to the $15 price it’s trading for today. You can beat them at their own game by selling the $10 puts that expire in January. Your take on a 10-contract trade… $500!

Now, put-selling returns aren’t calculated the same way a stock trade would be. Because you’re only required to put up 20% in margin (either cash or stocks that you already own), your returns are magnified.

For instance, on the Chesapeake trade, you would need to put up $2,000 in margin to make $500, or a return of 25% in less than nine months.

Still, the only downside (if you can call it that) is that you would own Chesapeake for $10. That’s less the premium, or about $9.50 – almost 40% below the current price!

Keep in mind, though, that put-selling is not a flash-in-the-pan strategy.

It works when you use it correctly to generate income with the knowledge that you may eventually own the shares at a price that you decide upon, and not the price the market dictates to you.

And the chase continue,

Karim Rahemtulla

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Source: Wall Street Daily