How To Get Instant Income From The Pentagon

With interest rates at extreme lows for the past few years and looking likely to remain that way for some time, it’s tempting to think that finding opportunities to profit would be like shooting fish in a barrel.

Indeed, former Federal Reserve Chairman Ben Bernanke recently wrote in a blog post: “If the real interest rate were expected to be negative indefinitely, almost any investment is profitable.”

#-ad_banner-#We’ve certainly seen this play out with the stock market. But it’s also been great news for companies undertaking big ticket construction projects.

#-ad_banner-#Businesses use accounting models to assess the feasibility of such projects. Models show a higher expected return on investment (ROI) when rates are low. Higher ROIs mean more investment projects will meet minimum requirements for approval.

Indeed, non-residential construction spending in the United States is estimated to rise 5.6% this year to just over $390 billion, according to Statista, and continue at about that growth rate over the next several years.

I’m looking at investment opportunities in the companies that can help businesses complete these projects.

AECOM (NYSE: ACM) is one such company.

AECOM is a top-ranked infrastructure and support services firm, providing planning, consulting, architectural and engineering design; and program and construction management services for a variety of projects. These include highways; airports; bridges; mass transit systems; government and commercial buildings; water and wastewater facilities; and power transmission and distribution projects.

As an example of what the company does, it has a contract with the Pentagon Renovation and Construction Office to provide program and construction management and technical expertise for the restoration of the Pentagon.

The Pentagon is the largest low-rise office building in the world with 6.5 million-square feet housing 25,000 personnel. Offices are connected by 17.5 miles of corridors within the building.

AECOM has managed this $5.4 billion construction project, which began in 1991 and runs through this year, in five phases, each focusing on a 1.5 million-square-foot area. This allowed renovations to be completed while roughly 80% of the building remained occupied and operational. The company provided temporary offices for roughly 20% of the 25,000 building occupants at any given time, planning and executing all required moves. The complex nature of this project demonstrates AECOM’s expertise.

This professional management of complex projects has allowed the company to generate revenue of $10.6 billion in the past 12 months. Revenue of $18.2 billion is expected for the full fiscal year, ending in September.

About half of ACM’s business (48%) comes from the private sector and the rest from government contracts. Just 15% of business is related to the oil and gas sector, which the company notes is well below the average of its peers, which is closer to 50%. Further, two-thirds of its business comes from the United States, meaning the rising U.S. dollar should have little negative impact on revenues.

All signs point to a strong 2015 for AECOM, which is why, instead of buying shares, I recommended selling put options on the shares in last week’s issue of Income Trader.

By using a put-selling strategy with ACM, we have the opportunity to either generate up to a 12.7% instant return or buy shares at a 14% discount.

As you may already know, one “put” option gives buyers the right — but not the obligation — to sell 100 shares of stock at a specified price before a specified date (expiration date).

When we sell a put contract, we receive cash, or what I call instant income, upfront for accepting that obligation.

Selling a put means we’re expecting the stock not to fall to a certain price (strike price). If it does, for every contract we sell, we have to buy 100 shares at that price (more on why that’s not a bad thing in a minute).

If the stock goes up, or doesn’t sink to the strike price we chose, then we’ll pocket that upfront money as pure profit.

As part of the process your broker will likely require a deposit — called a margin requirement. It usually runs about 20% of the amount it would cost you to buy the shares.

So let me show you how it worked with this AECOM trade.

Shares of ACM trade around $31.14. I recommended selling ACM Jun 27.50 Puts for $0.60 – $0.80. Currently, this option is trading outside of my recommended range, but that could change. As long as the puts are trading between $0.60 and $0.80, I still recommend executing the trade.

Here’s how the trade looks if we sold one ACM put.

Your broker would likely require a margin deposit of $550 per contract (20% of $2,750 — the total cost per contract if you were to buy shares of ACM at the strike price).

Now I’m looking for one of two desirable outcomes with this trade.

1) Generate instant income: If you sell this put at $0.70, or the middle of the range ($0.60 to $0.80), then you would generate $70 (remember each contract controls 100 shares) of instant income. If shares of ACM trade above the strike price of $27.50 on June 19 (expiration date), then we keep the instant income for a return of 12.7% in only 44 days. If we can repeat a similar trade every 44 days, we’d earn about 105% on our capital in 12 months.

OR

2) Buy shares of ACM at a 14% discount: If shares of ACM trade below the $27.50 strike price on June 19, then we are obligated to buy ACM at $27.50 per share. But adding in the $0.70 instant income we received for each share, we’ll end up buying shares of ACM for $26.80, a 14% discount to the $31.14 share price when the trade was initiated.

If this happens, you get the opportunity to buy shares of a company you want to own anyway — just at a much lower price than the market was offering when you sold the put. You’ll even know the price upfront before you enter the trade.

In fact, many of my readers are have already generated $6,000… $19,500… and even just under $150,000 in instant income. For the first time ever, I’m revealing my investment secrets in an eight-minute training video. With a 100% win rate and average annualized gains of 53%, I won’t be giving away my strategy for very long. For a limited time you can watch my free training video (you’ll see how to make anywhere from $45 to $1,300 this Thursday).