How to make 28% annualized gains from one of the market's safest stocks...

 It's not often you get a chance at making 28% annualized gains in the stock market. But Amber Lee Mason just showed DailyWealth Trader subscribers how it's possible today...

 

This morning, Amber explained how subscribers can generate income by selling covered calls on one of the market's most stable, cash-gushing companies.

 

Selling covered calls is a strategy that creates income for investors who agree to sell shares of stock at a specified price (the "strike price") at an agreed-upon date in the future. You enter the trade by buying at least 100 shares and selling call options against that position. (You can also sell calls against an existing position.)

 

If the underlying stock is trading above the strike price at the expiration date, your shares are called away. You keep the premium and exit the position.

 

If the stock is trading below the strike price at expiration, you keep both the shares and the premium you received for selling the call options.

 

 That's the beauty of selling covered calls... You can do it over and over again as long as you own the shares.

 

And today, Amber is selling another round of covered calls on one of her favorite companies: networking giant Cisco. DailyWealth Trader subscribers have "traded for income" with Cisco 16 times, generating annualized returns between 10% and 32%.

 

From today's issue...

 

You see, most of the time, when we sell puts or covered calls, the trade closes at expiration. If we've sold puts, our obligation ends. If we've sold covered calls, our shares get called away.   But occasionally, we're left holding shares after expiration. When that happens, we can simply generate more income by selling covered calls.   That's what we've done with Cisco. This is a cash-rich, dominant company. But negative sentiment has kept prices low, which makes it perfect for selling options.

 

 Shares of Cisco popped nearly 4% yesterday on news that Chinese competitor Huawei would pursue a less aggressive growth strategy.

 

When a stable stock like Cisco makes a big move like it did yesterday, it's a good time to consider selling calls against the position. You can lock in some of your gains and protect your downside.

 

 Meanwhile, DailyWealth Trader subscribers are sitting on big gains thanks to one of the world's greatest trading strategies.

 

Regular Digest readers are familiar with the strategy of "bad to less bad" trading. It has generated many of the biggest winners in S&A history. Amber explained the strategy in the August 15 edition...

 

Trading "bad to less bad" situations is one of the most profitable strategies ever created. It's a reliable generator of 100%... 200%... even 500% gains.   The term "bad to less bad" was coined by our friend and colleague Steve Sjuggerud. To make a "bad to less bad" trade, you need to (1) find an asset that has been hammered for some reason... be it a natural disaster, a broad market selloff, or an industry downturn... (2) Buy it close to a market bottom, when things are bad. And (3) make big returns when a bit of normalcy returns to the market... when conditions get "less bad" for the asset.   The key here is that you CANNOT wait for things to become "good." By the time things get "good" and rosy headlines appear, the big money is gone. The big money is made not by waiting for things to go from "less bad to good," but from "bad to less bad."

 

 A hallmark of "bad to less bad" trading is the low risk involved. When things get "bad" for a stock, nobody wants to own it. Investors flee. Sooner or later, there's nobody left to sell. That's when nearly all the risk has been "wrung out" of the trade... And the price of the asset bottoms.

 

When you find a trade with upside many times greater than the downside, you're looking at a great "bad to less bad" setup.

 

 Last October, aluminum producer Alcoa (AA) offered a classic example.

 

Aluminum prices were down 35% from their May 2011 peak. Sentiment toward the global economy was negative. And shares had been crushed... down more than 50% over the previous two-and-a-half years.

 

 From the October 21 edition of DailyWealth Trader...

 

Like the steel business, the aluminum business is prone to major booms and busts. It's sensitive to economic cycles. When the economy slows down, aluminum tends to bust. When the economy picks up, aluminum tends to boom.   Like U.S. Steel, Alcoa shares suffered a brutal period from early 2011 to mid-2012. During this time, global economic growth was sluggish. This caused Alcoa shares to fall from a high of around $18 to a low of around $8. But as you can see from the chart below, the $8 level represents the area where things "can't get any worse."   ​ Again, when things can't get any worse, they can only get better. We expected out-of-favor U.S. Steel to rally as investors warmed up to the idea that economic growth was returning... And we expect Alcoa to do the same.

 

DailyWealth Trader subscribers closed out of the U.S. Steel trade in January for a 36% gain in six months. Alcoa hit a multiyear high around $13 a share yesterday... Amber's subscribers are up 50% on the stock in about five months.

 

Here's the chart of Alcoa today:

 

 

 Amber recently created a three-minute-long video explaining "bad to less bad" trading. You can watch it for free by clicking here.

 

 There's another "bad to less bad" trading setup occurring in the market today in offshore-drilling companies. These companies are cheap... But the market is starting to take notice. Porter and his research team at Stansberry's Investment Advisory have been encouraging subscribers to take advantage of the opportunity. As we discussed in the March 10 Digest...

 

One reason offshore drillers are so cheap today is the boom in shale oil and gas. There's no reason to go into deep water to search for oil when it's readily available onshore.   Furthermore, oil giant BP's Deepwater Horizon accident in the Gulf of Mexico crushed the offshore-drilling industry.   On top of that, commodity-based businesses are cyclical... In the case of offshore drillers, when oil prices are high, folks want to drill more. Day rates for drilling rigs soar... so the drilling-services companies order more rigs... which causes oil production to soar. But eventually, prices come back down and drillers are left with a huge inventory of unused rigs.

 

 As long as the market is focusing on the U.S. shale boom, investors are able to buy companies operating in the Gulf of Mexico for cheap. The oil off the shore of the Gulf will position the U.S. as the world's largest energy producer. But it's an unpopular idea today, which means it's the perfect time to buy. As Porter wrote in his February issue...

 

Meanwhile, the best news for investors is that the oil industry's success with onshore shale has temporarily overshadowed all of these offshore discoveries. There's a widespread (and false) belief that the expense of offshore production means that these oil resources won't be produced as long as the shale boom remains.   That's wrong... But as long as that view remains dominant, we have an excellent opportunity to buy up the best offshore-production assets for a fraction of their cost to build.

 

 Take a look at this chart of major shale producer Devon Energy versus Porter's favorite company operating in the Gulf of Mexico. As you can see from the following chart, the market has placed a high value on shale assets and dumping offshore drillers...

 

 

 Offshore-drilling stocks have just started to turn higher. And Porter's Investment Advisory team has recommended two Gulf drillers. One is a capital-efficient company controlled by one of the greatest investing dynasties in America.

 

The other is a "lottery ticket"... This company buys old and abandoned wells in the Gulf, applies current technology and methods, and hopes to produce more oil. If this company catches a couple breaks, Porter's team believes it could be a "10-bagger" (meaning you could make 10 times your money).

 

To read their research on the Gulf and gain access to their two favorite ways to play the opportunity, you need a subscription to Stansberry's Investment Advisory. You can sign up for a risk-free, 100% money-back trial by clicking here.

 

 

 New 52-week highs (as of 4/1/14): Alcoa (AA), Brookfield Asset Management (BAM), Becton-Dickinson (BDX), Anheuser-Busch InBev (BUD), Chicago Bridge & Iron (CBI), CF Industries (CF), Diebold (DBD), Dorchester Minerals (DMLP), Devon Energy (DVN), Enterprise Products Partners (EPD), Energy Transfer Equity (ETE), SPDR Euro Stoxx 50 Fund (FEZ), Fidelity Select Medical Equipment & Systems Fund (FSMEX), Corning (GLW), Medtronic (MDT), Marvell Technology (MRVL), Microsoft (MSFT), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), Constellation Brands (STZ), Cambria Shareholder Yield Fund (SYLD), and Targa Resources (TRGP).

 

 In today's mailbag, a subscriber recounts when he was duped by a stock pump. We hope you haven't had similar experiences. Send your e-mails to feedback@stansberryresearch.com.

 

 "I am a long term Alliance member, so this example is especially embarrassing, as it goes against practically everything I ever learnt through my lifetime membership. I lost a large portion of my money on this one investment and I broke so many Stansberry rules I will not dare to list them all. This was by far my worst investment ever. I now follow the Stansberry rules carefully.

 

"I somehow found out about a stock from a TV personality who was recommending a company which was growing quickly based on the expansion of Chinese mobile. I think it originally was from the % gainers list on yahoo finance, but later I signed up for the newsletters from the main stock promoter. I read all the SEC filings for the company, and decided to take a shot based on the possibility of a 10 bagger. My position started off very small and each time some good news would be announced I would add to the position slightly. The stock promoter would keep pumping the stock and it would go up and down depending on the promotion or the news. The fundamentals of the company were terrible, but the growth the company was announcing made it acceptable to hold through the ups and downs. At this point it was still a profit on a small position (<1%).

 

"It was at this time where the mistake was made. While looking through the yahoo message boards several people keep mentioning a Facebook group that had been set up for 'bullish investors only.' They actually labelled it like that to keep out the bearish people. The Facebook group was private and was only open to privileged users, so by deduction it must only have sophisticated investors in the group. Sure enough I was given permission to join the group. I was delighted that all the profiles in the group were real people with qualifications, real photos and important jobs. Therefore I had to be in company with smart investors. After weeks/months of reading and chatting with these people, I found out that many of these people had invested much more than I had in the company, some as much as $2 million. I then decided to substantially increase my investment to a very large percent of my account, and it was all downhill from there. The group never wavered on their bullish stance, so it felt good to be in alliance with the smart sophisticated fellow investors who were in for the 10 bagger.

 

"This mistake is the sophisticated peer group problem, in that real people in a private Facebook group of well qualified people (doctors, lawyers, business owners) will significantly increase ones confidence in an investment, and the groups camaraderie will only exacerbate the problem no matter how bad the company's fundamentals. The market cap went from hundreds of millions to a few million over the next year, and the group was shut down and over 40 people in the group all lost money." – Paid-up subscriber Andre Glauser

 

Regards,

 

Sean Goldsmith

New York, New York

April 2, 2014