The market has certainly taken us on a wild path since the Covid-19 outbreak.

When the coronavirus pandemic took hold, a lot of investors were caught off guard. But as we quickly learned, the world as we knew it would drastically change — setting up a once-in-a-generation buying opportunity.

We all know what happened next. As the virus swept the globe, central banks slashed interest rates to zero, investors became more comfortable with the “new normal”… and the rally began.

Fast-forward to today, and we’re in a different market. Valuations became overstretched, inflation is the highest we’ve seen in 41 years, and central banks are scrambling to raise rates. As a result, we’re now officially in bear market territory — defined as a pullback of 20% or more from recent highs.

Since the beginning of this year, I’ve warned that this might get worse before it gets better. And as a result, I’ve been trimming portfolio positions over at my premium services in an effort to protect — and raise cash for when opportunity inevitably arises.

But what if you have long-term positions in your portfolio that you just don’t want to sell? How do you protect your gains?

I don’t know exactly what will happen next (although I can take an educated guess). But those are discussions for another day. In the meantime, there is a perfect strategy for this kind of market — one that not only protects your portfolio, but also earns extra income in the process…

Get Paid To Protect Your Portfolio

Let me explain, using a widely-held stock such as Pfizer (NYSE: PFE). As I write this, the stock is currently trading around $47 and offers a respectable yield of 3.3%.

Suppose I own the drug maker and like its long-term prospects. But I also don’t see the stock shooting a lot higher, at least over the next few months.

One way to mitigate risk — and generate extra income at the same time — is by selling a covered call option.

If you’re new to options, don’t be scared by the terminology. It’s really quite simple.

Call options convey the right (but not the obligation) for one investor to purchase stock from another at a pre-designated price. In this case, there is a call option on PFE expiring on July 29, with a strike price of $50. The cost (or premium) is $1.00 per share.

Since each contract involves 100 shares, this one would cost $100. (Keep in mind, prices can and do change frequently. This example is for illustrative purposes only.) But as the seller, I would collect that cash from the buyer up front. In turn, they have the right to buy 100 shares of PFE from me at $50 per share.

Suppose I think there’s a decent chance that PFE fails to reach $50 between now and July 29. The stock might slide a bit, stay flat, or possibly post a slight gain. Under any of those scenarios, the option would expire, and I would keep my shares. Nobody will voluntarily exercise their right to pay $50 for a stock that can be bought on the open market for less.

So, I would happily pocket an extra $100 profit for my trouble and move on.

That might not sound like much. But by itself, $1 on a $47 stock represents an income stream of about 2%. But that’s just for a holding period of about 5 weeks. After the contract expires on July 29, I could immediately sell a second call option for another time period, and then possibly another…

The longer PFE stays below $50, the more income I can harvest. Or I can simply pick an option with a higher strike price the next time around..

Repeating this strategy just four times over the next year would bring in $4.00 per share in premium income, or 7%. Of course, we don’t know for sure if market volatility will keep option premiums elevated at these levels for the rest of the year. But keep in mind, I would also still collect the regular dividend yield of 3.3% along the way.

Either way, I should have no problem doubling PFE’s income stream in this scenario.

Why This Works So Well

Dividend investing is a waiting game anyway. We buy with the intent of getting a paycheck every quarter and hopefully selling the stock in the future at a higher price. If the stock reaches that target price quickly, great. If not, writing call options offers a way to collect more income while you wait.

In this case, you could more than double the payout on PFE over the next 12 months. Now that’s making your money work harder.

I’m a fan of this using strategy to earn supplemental income during periods when the market (or an individual stock) isn’t going anywhere fast. We all have slow movers. Utilizing options is a bit like “renting” them out for a while to make a few extra bucks.

And contrary to popular belief, these call options aren’t risky. Actually, they reduce your downside exposure. Let’s say I bought PFE today at $57. If I can collect $4 per share in premium income on Pfizer, then my breakeven price drops from $47 to $43.

I know what you’re thinking… What happens if PFE moves sharply higher and goes above the $50 strike price? Well, let’s just say that I wouldn’t complain about that scenario either. After all, that would represent an 6% gain. But with just one premium earned from a covered call trade, that would lower cost basis to $46 (for a total return of 8.6%). Not a bad tradeoff.

What’s the catch? Well, I would have to sell my PFE shares at the agreed-upon price of $50 and forgo any additional upside beyond that. So, if PFE streaks to $55, then the rest of the gain would accrue to the option buyer. But that might be a fair tradeoff, depending on your goals and the state of the overall market.

How To Put Covered Calls To Work For You

There are really only four scenarios once we buy a stock: it can decline; stay flat; rise a little; or rise a lot. Obviously, we prefer option four. But in any of the other three, covered calls can boost returns.

In the meantime, for more information about covered calls, I recommend checking out my colleague Robert Rapier’s latest report…

Robert has a track record of generating outsized income regardless of market conditions. And simple strategies like this one allow him to extract multiple payments from the same stock over and over again, whether the broader market is going up, down or sideways.

By arming yourself with his money-making system during the bear market, you’ll not only survive…you’ll also thrive.

Click here to learn more.