There's one word that strikes fear into the hearts of most investors.
Options are one of the most powerful financial tools ever created. But they're also one of the most misunderstood. Many folks think they're just too risky...
That's why last night, I sat down with Rae, an investment newbie and an assistant researcher here at Stansberry Research to show her just how easy – and safe – it is to make money selling options.
I walked her through each step of making a trade.
In just five minutes, she made $210...
Last night, Rae had to overcome the biggest hurdle to selling options... fear. She realized how simple and profitable selling options is when done right.
That's why I started Retirement Trader with a simple goal: teaching regular folks how to safely create income in retirement by using the same investment techniques as Wall Street banks and traders.
While some people think of these techniques as "advanced" or "complicated," they're actually very easy to learn and use. And they can drastically improve your investment results.
I can't be in the room with you when you trade, but I can give you the next best thing...
In Retirement Trader, I give you all the resources you need to start – including a report on getting your brokerage account set up, my Master Course video series, and a list of 25 of my favorite companies to sell options on.
Once you're ready to make your first trade, we'll tell you exactly what to do throughout the trade.
So if you're ready to starting earning safer, steadier income in your portfolio, click here.
Today, I'm covering some of the most popular option questions from last night. And if you have questions I haven't answered, send them to[email protected].
Q: Can I use this strategy in a bear market? – K.G.
A: When a real bear market takes hold, things will get interesting...
We've got three automatic protections in place. First – and always most important – we only sell options on stocks we actually want to buy and would be willing to own. (By the way, this may be the most important rule to follow when using this technique.)
Second, the income we generate from selling options lowers our "cost basis," and lets us buy every single stock at a discount from the market price.
Third, when stocks fall, implied volatility goes up. Implied volatility is a measure that represents the expected price volatility in the underlying stock. Simply put, it means we get paid higher premiums for the options we sell.
Q: Can you sell options in a tax-deferred account? – S.W.
A: Short answer: Absolutely!
Almost anybody can trade covered calls in an IRA or a self-directed 401(k). In fact, there are two big benefits that make retirement accounts ideal for trading options... In tax-deferred accounts, you don't have to keep track of the trade's gains and losses for IRS reporting. And you don't need to worry about short- and long-term capital gain differences, either.
Of course, if you haven't contributed much to your IRA, you'll be limited to what stocks on which you can trade options. With a regular account, you can add cash at any time.
If you're a put seller, it's a little trickier to use a tax-deferred account. You usually can't use margin to boost your returns in an IRA or 401(k). So if you're using a retirement account, we'd recommend focusing on the covered-call trades anyway. The returns of the two trades are essentially identical.
Q: How do you pick stocks to trade options on? – A.S.
A: I have three criteria for choosing stocks. My main goal is to help you maximize gains while reducing downside risk.
First, I look at a company's long-term market viability. Does the company produce something the market wants and need? Think of a company like Apple. Every time there's a new iPhone, people line up around the block just to be one of the first to get it.
Second, I look at a company's financials. I look at debt, cash, earnings... I want to trade on stocks that let me sleep well at night. If a company is sitting on a huge pile of cash, I can sleep easier than if it's sitting on a pile of debt.
Third, I check to see that the company is shareholder-friendly. You want to find a company that's paying regular dividends, consistently growing dividends, and regularly buying back shares. All of these are indicators of a company that cares about its shareholders.
In the latest issue of Retirement Trader – just released this afternoon – I found a company that does exactly that. This company has a long history of shareholder friendliness... and it's delivering extraordinary profits year after year.
If you're not a Retirement Trader subscriber, click here to get started.
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
March 9, 2018