The origin of one of my favorite investing strategies traces back to the 16th century… when a French botanist introduced an exotic Turkish flower to Europe.
As the tulip made its way from Austria to Germany, Holland, and England, it created a sensation.
The flower soon became the focus of one of the earliest recorded financial manias. As growers cultivated more and more varieties of colors, demand exploded, and almost everyone wanted the newest-colored bulb.
The tulip mania led to increases in prices that make the U.S. housing boom of the 2000s look tiny by comparison.
Believe it or not, this mania helped create a unique income strategy that we can use today. While some people use this tool to make risky trades on volatile stocks, it was intended to help you reduce your risk.
And we can even use it to collect thousands of extra dollars every month…
A mania over tulips is hard to picture today. But it happened – and it caused some truly wild behavior.
Again, one of the most prized flowers was the black tulip. Rumor has it that the first person to own a black flowering tulip sought out other black bulbs, bought them, and smashed them. That way, he remained the sole seller of black buds from his one and only black tulip plant.
By the mid-1600s, tulips were traded in designated places all over Holland. Trading invited speculation, which stoked the mania.
To bring order to the market and reduce their risk, florists in 1636 started demanding money upfront for protection against the possibility that their buyers would renege on their deals nine months later when the bulbs were brought out of the cellars…
If you owned bulbs, you could collect money up front in exchange for agreeing to sell bulbs in the future.
And voila… Dutch florists and the Dutch national parliament had created one of my favorite modern moneymaking tools. They were selling options.
When the bubble burst in the spring of 1637, those who sold the options had partially protected themselves by collecting money earlier. But those who were the buyers lost everything.
Today, people often think of this way of trading as risky. But its real role – dating back to its innovation – is to reduce investor risk.
The truth is, this strategy is one of the most misunderstood and misused financial vehicles on Earth. The popular press – and even your broker – will tell you it’s guaranteed to lead to financial ruin. But that’s just not true… if you understand how to trade them.
The way most people use this strategy increases the risk to their capital. Most options advocates like to tout buying options, rather than selling options. When that’s the focus of your trading, it’s a lot easier to pile up frequent losses and fewer gains.
But my technique is meant to decrease the risk to our capital.
Done safely, selling something called a “put” option is a fantastic way to earn income. This technique is slightly different from what the tulip sellers did. But it draws on the same basic idea…
When you sell a put option, you’re agreeing to buy a stock below the market price within a set time. You get paid for making that agreement. If the stock never drops below that price, you get to keep the cash – free and clear. And if the stock does drop below that price, the cash ensures you get a discount to that price. It’s like getting paid to buy stocks at a discount.
Here’s the real beauty of this strategy: When you sell options, you don’t have to be exactly right about how or when a stock will move up in price. Many factors work in your favor. So even if the shares stagnate, you still profit.
For years, I’ve shown readers how to dramatically alter their retirements for the better…
We can use this technique immediately to make “overnight” income on what I consider “must own” investments… while assuming less risk than we would take on by simply buying shares.
Your only requirement here is that you must be open to a new investment idea.
Here’s to our health, wealth, and a great retirement,
— Dr. David EifrigLegendary Stock-Picker Predicts Next 1,000% Stock [sponsor]
34-yr-old Matt McCall made history when he predicted five 1,000% winners on national TV. Now he's doing it all over again. Over the past decade, he's found 18 recommendations that soared 1,000% or more. And he just went public with what he predicts will be his next 1,000% winner. If you've ever wondered how legendary investors find stocks that shoot up 10X - and how you can do it too - click here.
Source: Daily Wealth