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The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
Saturday, March 25, 2017
Today, I'm going to walk you through all the details of how to make the type of options trade I recommend in my Retirement Trader advisory...
After today, you'll know all you need to use this strategy yourself... Or you can simply go back to your humdrum stock returns.
The strategy that I use is known as a "covered call." Using a simple example, I can show you exactly how this risk-reducing, return-boosting approach works...
If you follow the entertainment business at all, you may have heard of a movie script or story being "optioned."
This means a studio has approached a writer and expressed interest in turning his story into a movie. The studio pays the writer, say, $10,000 today to lock up the rights to the movie... And if the studio decides to move forward, it will buy the script from him for $100,000.
The screenwriter just sold the movie studio a covered call. He gets to keep the $10,000 he was paid up front, no matter what.
If the studio makes the movie, he makes more money. If the studio moves on, he keeps the option money and gets to sell his script again to another buyer after the first buyer decides not to exercise the option.
When the phone rings and you get an offer to have your script optioned, that's a day worthy of celebration.
We can do something similar with the stocks we already own...
Longtime readers probably own some high-quality, capital-efficient "World Dominators" like tech giant Microsoft (MSFT) or chocolate maker Hershey (HSY) already.
If you limit yourself to traditional investments, you simply can't do better than stocks like these when it comes to building wealth.
But you can do even more with some options "frosting" today...
For example, as a Microsoft shareholder, you can wait for earnings to rise and push the share price up. You can also wait for earnings expectations to increase – thereby leading the market to place a higher valuation on your shares.
But why not sell an option and collect cash early, just like the screenwriter?
Let's say you're sitting on 100 shares of Microsoft, which traded at about $64 per share earlier this week. Your total position is worth roughly $6,400. In the next two-plus months, Microsoft shares may rise or fall... And your wealth will do the same.
Instead, you could find someone to pay you cash today for the option to buy your stock at a later date. In Microsoft's case, you could quickly enter an option contract to sell your shares in June for $65. Earlier this week, you could have sold this call for about $2 per share.
This means you'd collect $200, free and clear. It would show up in your brokerage account immediately, and you could do whatever you'd like with it. It will never go away.
When the option expires in June, the call buyer will decide if he wants to buy your shares of Microsoft for $65.
If shares trade for more than $65, the buyer will take them from you... since he couldn't get them on the open market at that price.
If they still trade below $65, he won't want them. He'll leave them for you. In that case, you could sell another call option and collect more cash instantly. When that expires, you can do it again, and so on.
At the prices from earlier this week, you could collect about $800 a year on your $6,400 investment in Microsoft if shares don't move a penny. That's an extra 12.5% a year...
And it gets even better... You see, selling covered calls also lowers your risk relative to holding stocks the usual way. Let me show you how...
If you've invested $6,400 in Microsoft shares, you have $6,400 at risk. But if you collect $800 over the course of the year, you now have only $5,600 at risk ($6,400 minus $800).
On a per-share basis, if you paid $64 for Microsoft but sell a single call for $2, your "cost basis" is now down to $62. This reduces your risk if (and when) the stock falls.
On the upside, if shares stay at less than $65, you've made a 3.1% profit ($2 on $64) without the stock price moving.
Here's how to think of a covered-call trade: You're getting a gambler to agree to pay you now for the right to pay you even more later. That's a winning move.
Now, you may still have no interest in options. That's OK...
After all, this strategy doesn't produce "home runs." In fact, selling covered calls can limit your upside if your stock makes a big move. (For example, if Microsoft shoots up to $80 before expiration, you'll be stuck selling for only $65.)
So if you still believe that building wealth comes from making wild speculations to chase spectacular returns, then collecting cash payments from high-quality stocks over and over again may not appeal to you.
But if you've learned enough to understand that real wealth comes from limiting risk, you may never go back to investing the usual way again.
I've been using this strategy in my Retirement Trader advisory since 2010...
We've recommended 171 different covered-call positions... and closed 162 of them for profits. That's a win rate of 94.7%.
At the same time, our covered calls have posted returns that consistently beat the market. Over the years, this strategy has produced an average annualized return of 16.4%.
When you post gains with a win rate above 90%, it's easy to stay in the market and keep trading. And when you can earn 15%-20% a year, your wealth compounds at an astounding rate.
At 16.4%, you'll double your wealth every four and a half years. I doubt the gamblers and speculators can claim anywhere close to these returns.
If you've ever considered trying my Retirement Trader service for yourself, there has simply never been a better time to do so...
As you may have heard, I hosted a special educational webinar earlier this week in which I completely "pulled back the curtain" on this strategy... I even walked folks through a real-life trade they could make in their own accounts.
If you missed it, I'm sorry... But you're not out of luck just yet...
As part of this week's special event, we're also offering a massive discount off the usual cost of Retirement Trader... Better yet, if you take advantage today, you'll also get two full years of access to my income-focused Income Intelligence advisory, access to my "Master Course" educational-video training series, and much, much more... absolutely free.
There is simply no better or easier way to put this strategy to use for yourself immediately than by becoming a Retirement Trader subscriber. You see, while Retirement Trader will give you tons of excellent recommendations to earn safe, consistent income, I believe the educational value is even greater...
In fact, we spend the bulk of our time educating our subscribers... And we do everything we can to make sure they understand every aspect of every trade we publish.
When we recommend a new trade, we include a detailed description of all the possible scenarios that could play out. You will always know exactly what to do, what you're risking, what you stand to gain, and why.
Click here to learn to more about Retirement Trader... including all the details on this special, limited-time offer. But please don't delay... This deal won't be available much longer.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: It can seem daunting to learn options at first... But once you study Dave's advice and strategies – and learn exactly what you need to do – you can use his risk-reducing approach to generate safe income. And right now, Dave is extending a special, limited-time offer for a free year of Retirement Trader. Get all the details right here.