Use Market Fear To Generate Double-Digit Income

About a year ago, I set out to find a winning income strategy… A strategy that can generate “Instant Income” in any market environment. 

And now seems to be a good time for income investors to start considering it. 

Why? Because rising interest rates may hurt some dividend-paying stocks in the months ahead. As Bespoke Investment Group co-founder Paul Hickey put it this week: “It doesn’t take much of a move in interest rates … to make a lot of stock dividend yields quickly look considerably less attractive.”  

#-ad_banner-#And as dividend stocks become less attractive, your risk of losing money by holding the wrong ones increases.

Sure enough, as USA Today pointed out, high-yielding utilities — an income investor favorite — have lost around 10% since Bernanke’s May 21 announcement that the Fed‘s bond buying program is likely to begin tapering off later this year.

Now, don’t get me wrong. I’m not saying you should avoid dividend stocks altogether, but now may be the time to try an alternative approach to collecting income. That’s what this strategy is for.

From July 2012 to this January, I put my “Instant Income” strategy through a rigorous test to prove my system worked in real-life trading scenarios. The results were even better than I expected. I helped readers generate thousands of dollars in income on my way to an 84% win rate, without them having to own a single share of stock.

Since then, I’ve launched a newsletter service to help investors navigate the world of options… and the results are even more impressive — every single trade I’ve closed has been a winner. That’s one winning income trade a week since Feb. 6. You can see all 16 closed trades here.

My “Instant Income” strategy allows investors to do one of two things: either earn large amounts of income… or buy high-quality stocks at a deep discount. Either way, it’s usually a win-win.

The strategy involves selling puts on undervalued, high-quality stocks. It’s a strategy that allows you to generate what I call “Instant Income” because when you sell a put contract, money is immediately deposited into your brokerage account… money you keep no matter how the trade turns out.

It’s one of the smartest, highest-percentage winning strategies in the financial world.

To recap, “put” options give investors the right — but not the obligation — to sell a stock at a specified price before a specified date, known as the expiration date. Selling a put obligates us to purchase that stock from the put buyer if it falls below a specified price, known as the option‘s strike price. When we accept that obligation, we receive cash, or what I call “Instant Income,” upfront, known as a premium.

And even during a volatile month that saw the S&P 500 fall 5.8% from its peak, every put with a June expiration date expired worthless, meaning the income we collected from selling puts is pure profit:

The chart speaks for itself. With my “Instant Income” strategy, I’m earning average returns of about 9% every 40 days. In fact, if you’re an income investor, think of these returns as “yields” on the capital set aside to make these income trades. But what makes them even sweeter than traditional income investing is that I’m not holding these for an entire year to collect these returns — I get paid upfront. 

And although the market has been volatile lately — the CBOE Volatility Index (VIX) is up 30% in three months — I’m not concerned. In fact, higher volatility allows me to generate even more income.

You see, option prices are determined by several factors, including the underlying stock’s price, the exercise price and the amount of time until the expiration date.

But one major pricing factor that is a little more complicated is volatility.

We can get a general idea of whether volatility is high or low by looking at the VIX, also known as the “fear index.” The VIX tends to rise as the market falls and traders become more anxious. On the other hand, when market prices rise, the VIX tends to decline.

That’s great news for followers of my “Instant Income” strategy, because we are sellers of options, not buyers. We want them to be more expensive. That’s makes it easier to find options that deliver a lot of income. And I’m taking advantage of the spike in the VIX to collect even more income while I can.

Action to Take –> Selling puts during times of high volatility is the ultimate way to be greedy when others are fearful. When most investors are panicking, options sellers can take advantage of the opportunity by selling expensive options… and generating thousands of dollars in “Instant Income.”

P.S. — Using this kind of strategy has never been easier… and once you get the hang of it, you can use it on thousands of stocks to earn a stream of income — even if they don’t pay a dividend. As I mentioned, every single one of my trades so far has been a winner, with many of them essentially paying double-digit yields. If you’d like to learn more about my “Instant Income” strategy, you can watch a presentation I put together here