|Home||About Us||Resources||Archive||Free Reports||Market Window|
Steve's note: For the next few days, I'm handing DailyWealth over to my friend and colleague Dave Eifrig. On Wednesday, Dave is hosting a free training event to show viewers how to collect thousands of dollars per month in extra income. Today, he explains why this strategy may be simpler than you think...
Monday, March 20, 2017
If you're like most investors, you've been led to believe that it's impossible to earn large amounts of investment income without taking big risks.
This idea – which you'll hear from many financial advisors and brokers – is simply wrong.
It is possible to earn double-digit annual yields on your money – safely – by selling options.
So why doesn't everyone use this strategy to earn consistent income streams? Below, you'll find the five common objections I've heard from readers or that I've found on the Internet... and my responses to them.
REASON NO. 1: Option-selling strategies like covered calls are too risky. You'll earn 5% in premiums, but if the stock falls 25%, you're still down big!
This objection is 100% valid. The way most people approach covered calls is risky. (If you're unfamiliar with covered calls, I encourage you to read this essay.) These folks buy risky stocks because risky, volatile stocks typically offer larger cash premiums than safe, stable blue chips. But most people end up losing on risky covered-call positions because their stocks fall in value.
A risky mining stock or fad retailer can fall 20% in one day. That's why we avoid them... It's too much risk in our retirement accounts.
By sticking with dominant, stable stocks like Coca-Cola (KO), Intel (INTC), and Johnson & Johnson (JNJ), you can enjoy a tremendous layer of safety. These stocks generate big cash flows, pay steady dividends, and have strong balance sheets and great brands. You'd be happy to own these stocks for many, many years.
Reaching for extra premium in risky, volatile names is a loser's game. Leave the risky names for the "gamblers."
REASON NO. 2: Selling options is too costly. It generates too many brokerage fees.
Selling options does generate more brokerage commissions than conventional stock ownership. But if you sell covered calls about six times a year on any given position, it's not a big problem.
For example, if you have a $25,000 portfolio, you might perform 20-30 covered-call transactions per year. This many transactions would cost about $200-$300 with an average low-cost online broker. The income you generate by using an intelligent covered-call strategy more than makes up for the increased brokerage fees.
If you have a small portfolio (like $1,000-$2,000), excessive brokerage fees are a danger. Your account is also too small to buy 100 shares of most blue-chip stocks (which is necessary for trading options – 100 shares covers one option contract). If you have a small amount of capital, you'll need to accumulate more to make selling covered calls a viable plan for you.
REASON NO. 3: Selling options is too much work.
I always laugh at this one. Why? Because most good things in life require work!
If you're not willing to learn something new and do just a little bit more work to generate much higher returns, then investing your money on your own is probably not for you. You're better off giving your money to a broker or a mutual-fund manager.
To achieve great results in any walk of life, you have to do some work (often a great deal of it). To get a high-paying job, you have to learn a useful skill. To start a great business, you have to learn how to provide customers with useful services or products. In order to achieve better results in anything, you have to learn... And you have to do extra work.
This work – of selling a few options each quarter and monitoring your portfolio – will take about 30 minutes a month. It is well worth spending that extra time to generate safe, double-digit yields on a nest egg.
REASON NO. 4: Selling covered calls is too hard to understand.
I know the world of stocks and stock options can be intimidating. But I learned this stuff just out of high school years ago. The finer points, I learned at Goldman Sachs and on Wall Street. If I could get started selling options at 17, anyone can learn it.
By selling a covered call, you are doing two simple things:
That's it. Don't worry if the smaller details sound confusing at first. Learning how to do most things requires some work... and multiple reads of how-to guides.
Once you get the hang of things, selling options is as easy as managing a checkbook. The only math involved is on the fourth-grade level.
REASON NO. 5: I can't trade options in my IRA.
This is not true. You can sell covered calls in an IRA. You just need to contact your broker and tell him you want to be approved for selling covered calls in your IRA.
If you've ever had any of these five misconceptions about selling options, I hope you'll reconsider them today...
It's natural when starting something new to feel nervous and a little unsure of what you're doing... I urge you to push through those feelings. Stansberry Research subscriber K.C., a registered nurse, did. And here's what she told us...
In short, if you're willing to take a little time to learn something new and you follow a strategy of only selling options on dominant, stable stocks, you CAN safely earn annual double-digit income streams in the market.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
You can't predict the market... But you can prepare. Learn how selling options on high-quality stocks can help you minimize your investing risks, right here: The Three Principles of Consistent Wealth-Building.
"In the end, you can't earn a dollar unless you have a business that consistently earns money," Dave explains. These solid investments will carry you through the market trends of the moment. Read more about the power of reliable brands here: Buy These Companies and Ignore the Noise.
NEW HIGHS OF NOTE LAST WEEK
NVR (NVR)... homebuilder
Home Depot (HD)... home improvement
Lowe's (LOW)... home improvement
Stanley Black & Decker (SWK)... tools
U.S. Concrete (USCR)... concrete
Honeywell (HON)... manufacturing
Lockheed Martin (LMT)... "offense" contractor
Dow Chemical (DOW)... chemicals
DuPont (DD)... chemicals
Amgen (AMGN)... biotech
Eli Lilly (LLY)... pharmaceuticals
Sanofi (SNY)... pharmaceuticals
Anthem (ANTM)... health insurance
Cigna (CI)... health insurance
Johnson & Johnson (JNJ)... health care products
Ulta Beauty (ULTA)... cosmetics
PepsiCo (PEP)... soft drinks
National Beverage (FIZZ)... soft drinks
Dave & Buster's Entertainment (PLAY)... arcades
Walt Disney (DIS)... entertainment
Netflix (NFLX)... home entertainment
Electronic Arts (EA)... video games
Alphabet (GOOGL)... technology
GoDaddy (GDDY)... web hosting
Priceline (PCLN)... online travel
Harley-Davidson (HOG)... motorcycles
Ferrari (RACE)... luxury cars
Goodyear Tire & Rubber (GT)... tires