How This Simple Income Strategy Can Help You Reclaim Your Portfolio
In Greek mythology, the priestess Cassandra was a daughter of Priam, King of Troy. She was given the gift of foresight by Apollo.
But since she refused to return the god’s affections (and Apollo could not revoke the gift), she was cursed to utter true prophecies but never to be believed.
In case you ever wondered why the name Cassandra is invoked when discussing someone who warns of impending doom, yet is not believed, now you know.
I bring this up because we’ve spent the better part of the past decade warning investors about the dire prospects that most people face when it comes to their financial future.
Most people who are close to retirement (within a decade or less) simply don’t have enough to support their expectations. For the younger generation, the outlook is even worse. (How can you save for retirement when you can’t even afford a house?)
Those are just the facts, and they’re backed up by numerous studies and surveys. But unfortunately, the average investor has a “hands-off” mindset when it comes to their portfolio and retirement.
We think that’s a grave mistake. The game has changed. No longer can you afford to simply plow your money into index funds (or worse, hand it over to someone else) and walk away.
Believe me, we take no pleasure in saying any of this. But instead, our intention is to encourage you to take charge of your portfolio. And to do that, you will need to add new tools to your investing kit.
And that’s where my colleague Dr. Joe Duarte comes in.
The Doctor Is In…
For those who aren’t familiar, Joe has been analyzing, trading, and writing about the financial markets since 1990. He’s a former money manager and a professional investor who now trades his own account and shares his knowledge with individual investors.
Joe has written several bestselling books, including “Trading Options for Dummies,” “Trading Futures for Dummies,” “The Everything Investing in Your 20s & 30s Book,” among others. He was also an original CNBC Market Maven, has been quoted in Barron’s, The Wall Street Journal, and has also written for Marketwatch.com and other major publications.
What I find most interesting about Joe is his unconventional background. A medical doctor by training, Joe’s experience in trading is largely self-taught. And that means he’s the perfect analyst to turn to for outside-of-the-box strategies to surviving — and thriving — in an uncertain market.
One of those strategies involves selling put options.
Unlike some other options strategies, selling puts is one of the most conservative ways to generate additional income. In other words, this strategy is not designed for speculating — but rather for safe, reliable income.
When you sell a put options, you are taking on an obligation to buy a stock at a predetermined level (the “strike price”). In return, you get paid a “premium” (i.e. upfront income) for taking on that obligation.
If the stock doesn’t fall to this level, you simply keep your income and move on. If it does fall to the strike price, then you will be obligated to buy the stock at that price.
I recently sat down with Dr. Durate to learn more about him and how he’s using this strategy to help is followers generate instant income in this uncertain market. My questions are in bold…
Dr. Duarte, we introduced you to our readers several months ago, but could you briefly tell us a little more about your background?
Sure thing. As you mentioned, I’m still a practicing physician in an active medical practice. But I also have 32-year track record of helping everyday investors. During that time, I’ve worn a number of hats, from market analyst to former Registered Investment Advisor and writer.
I live in the DFW area and have written more than a dozen books on investing, covering practically every subject from biotech and energy to futures and options trading.
I’ve used a number of successful strategies during my career. And I believe any investor can learn to trade successfully without needing any special skills, without needing any kind of advanced software, and without being chained to your desk jumping in and out of trades, like a dog through hoops.
The mainstream financial media loves to conjure up boogeyman tales of the risk involved with options. How is the strategy you use different?
Over at my new Weekly Cash Machine service, we use a strategy known as “cash-covered put options.” That means you are selling a put option without owning the underlying stock.
For this strategy, you need an options account with enough funds/margin to cover in the event you are assigned the stock.
Being assigned requires you to buy the stock from the put buyer for cash. In other words, if you sell a put (one contract) in which 100 shares of the underlying stock are worth $5,000 upon assignment, your account needs to have $5,000 in order to cover the expense.
Now, that may sound scary. But here is why it shouldn’t be… First, I don’t pick any options that don’t meet my stringent criteria. And second, when I issue a recommendation, I monitor the price of every recommendation and will alert my subscribers to any changes that need to be made with every trade.
The result is that, by design, the odds of assignment are low. There will be times when a trade goes against us, of course, but we should win much more often than we lose.
Is this why you focus on short-term options?
Absolutely. In my experience, it’s best to sell options (either calls or puts) when the expiration date is within 45 days. That’s because options are priced based on the price of the underlying stock (intrinsic value) and the time left to expiration (time value).
The closer you are to the expiration date, the faster the time value erodes. What this does for you is increase the odds of the stock remaining below its strike price.
In turn, that reduces your risk of being assigned. It also means you can move on to the next trade that much faster after pocketing the premium.
I know there are no guarantees, but bow much money can you realistically expect to make with this strategy?
You’re right, there are no guarantees. But options that meet our criteria often fetch anywhere from $100 to $300 or more per contract. In a perfect world, the income should be anywhere from $400 to $1,200 per month per contract. The good news is that there will be times when we do better than that.
As we’ve said many times over the years, selling put options (the right way) is the closest thing you can get to a “win-win” in investing. But unfortunately, most regular investors either don’t know about it or are unwilling to try it.
But if you’re willing to step out of your comfort zone a bit and learn something new, then this has the power to completely change how you think about earning income in the market. Once you’re up to speed and trading with Joe, you could easily be making hundreds or even thousands of dollars in extra income per month.
There’s a lot more to say about how this strategy works. And Joe and his team have put together a bundle of resources to help you get started.
Go here now to learn more about Joe’s strategy and how can start getting paid as soon as this week…