In my ongoing campaign of promoting the virtues of option trading, today I’m sharing a strategy I learned 10 years ago to earn safe, steady income for myself.
If you’ve accumulated a well-allocated portfolio and you’re happy with your investment returns, learning how to use options may not be a priority for you.
That’s OK… but other investors will want to read on. Because if you’d like to earn higher returns in the years ahead, options will help you do that.
More important, options will actually help you reduce the risks of investing in the stock market.
In fact, options are the only strategy that regular investors can use to both reduce risk and boost returns by making a small change to the way they trade and invest.
If you don’t like watching your wealth rise and fall with the whims of the market, options can help you do much better and avoid the frustrations.
Investing in options can be safer and more predictable than the market as a whole… especially over the next five to ten years.
The way the markets look today returns may be especially hard to come by.
Staying invested in stocks over the long haul is the best way to build wealth.
From 1950 to the end of 2016, stocks have returned 7.7% per year, according to data from Nobel Prize winner Robert Shiller.
So when folks plan their financial future, that’s roughly the returns they expect to get over the next 10 or 20 years.
But that kind of data can be misleading because an even wider look from 1871 to 2016 showed stocks only returned 4% per year (again using Shiller’s data).
And there are long stretches where stocks have returned nothing…
- From 1929 to 1954, stocks returned nothing
- From 1973 to 1985, stocks returned nothing
- From 2000 to 2013, stocks returned nothing
If you started saving for retirement during any of those time periods, you’re out of luck.
A new reality…
Between the economy, technology, and politics; things are drastically different than they were in the past. So what do past stock market returns tell us about returns today? Or in the 2020s?
What if one day we look back and say the same thing about the coming decade.
And we haven’t even talked about the inevitable market pullbacks and corrections along the way… or the potential for bigger crashes.
Meanwhile, interest rates are rising off historic lows. That could spell the end of the 30-year bull market in bonds.
In total, it’s entirely possible that any investment asset just won’t deliver returns to anyone for years.
Except for options, that is…
When used correctly, options reduce the risk of holding stocks.
That’s right. Most investors think of options as a type of leverage or a way to make wild bets. But you can use them to do the exact opposite.
The strategy is simple.
You own a stock and you sell an option contract against it. When you sell that contract, you receive cash up front.
For example, if you buy a stock for $20 a share and sell a $1 option against it, you’ve collected $1. That stock is still trading at $20, but your cost basis is now $19.
Of course, the risk when you hold a stock is always the same. In theory, any stock can go to zero, but let’s assume you’re using a stop loss and you sell if it falls to $15.
Without the option, you hold a $20 stock that cost you $20… and you can lose up to $5 per share if it falls to $15.
With the option, you still own a $20 stock, but it only cost you $19. You only have $4 at risk if it falls to $15. By taking the extra $1 in as income, you just cut your risk by 20%.
Earning option income lowers your cost basis, making it less risky than holding the exact same stock.
There is no other way to reduce your downside in the market like this simple option strategy — one where you get paid up front.
If you hated watching your stocks drop in 2001 or 2008, options make those times much less painful.
While the best investors obsess over risk, it’s a fact that most investors tend to focus on returns.
Options can satisfy that desire as well.
Simply put, options provide the same – or better – returns, with less risk.
To learn more, click here.
Don’t be like most investors…
Who don’t want to learn about options because it requires learning some new terms and using some basic math.
You can learn the basics of options in an afternoon. Then you can make a trade or two and you’ll completely understand this simple strategy.
Considering that these few hours of work will earn you tens of thousands of dollars over the years to come. It has to be the highest hourly rate you can make.
Most traders jump into options and do it wrong, lose money, and never try it again.
Don’t be like them… click here to learn the right way.