It's a Labor of Love
We're getting to the goods... It's a labor of love... Turning speculators' and hedgers' money into our own... Cashing in with an entertainment giant... It only takes two months... If you still don't think this strategy is for you, watch this...
Editor's note: We've taken a break from our usual Digest fare so far this week...
Instead, our colleague Dr. David "Doc" Eifrig is sharing some of his timeless knowledge about options. (If you missed the first two days, you can catch up here and here.)
Over the past decade in Retirement Trader, Doc has helped thousands of subscribers learn how to use options safely to generate steady streams of income. And in today's Digest, he'll wrap up our educational series with a real-life example of this strategy in action...
Now, it's time to get to the goods...
Over the past two days, I (Doc Eifrig) have shared the reasons why I love options. And as I've said, I think you'll love options, too... if you just take some time to get to know them.
Even though I know most investors won't give options a fair chance – or even worse, they'll use them incorrectly – I've been running Retirement Trader for nearly 10 years now.
It's a labor of love...
I publish Retirement Trader so I can show the small number of subscribers who are willing to take charge of their finances how to earn consistent, low-risk income from the stock market.
This week, I've explained in broad strokes how options allow us to turn steady, dependable stocks into income-producing machines. On any given stock, we can collect hundreds – or even thousands – of dollars in income, depending on how much capital you use.
I've also talked about how my options strategy changes the way we look at stocks. Rather than searching for the next "hot" stock to make a quick profit, we can turn to boring, flat, forgotten stocks time and time again... and profit even when they don't move much.
And of course, I've argued that you owe it to yourself to take a little time to learn how this all works.
But admittedly, I haven't really showed you how it all works yet. That's what today is for...
We sell options to speculators and hedgers, turning their money into our own...
More specifically, we sell put options.
That means we enter a contract that obligates us to buy shares of a stock at a given price in the future. And for entering that agreement, the put buyer pays us money up front.
You can think of put buyers as people who want to either hedge the downside of shares that they already own or want to speculate that a specific stock will fall a certain amount in a particular time frame.
In either case, it usually doesn't happen. Hedges are bought for safety, but ideally, you don't need them. And speculators tend to lose money when things don't go their way.
As put sellers, we take the opposite side of those bets and collect the money up front. In the worst-case scenario, we end up owning shares of a company we like in the first place.
Let me show you exactly how it all works for Retirement Trader subscribers...
In late August, my research team and I liked shares of entertainment giant Disney (DIS).
We had studied the company's plans for its new streaming service, Disney+, and its potential to bring Disney closer to its customers.
At the time, analysts projected that Disney+ could have 13 million subscribers by the end of 2020. But we thought the company would get many more subscribers than that...
Even better, we already loved Disney's existing business and its value at the time.
Shares traded for roughly $131 in late August... And based on Disney's fundamentals, we were confident that the stock would be higher a year or two later.
So in Retirement Trader, we recommended selling, to open, the Disney $130 puts due in October.
By making the trade, you agreed that if Disney traded for less than $130 per share come October 18 (the so-called "option-expiration day"), you would buy 100 shares for $130 each.
To enter that agreement, you would've gotten paid $350 up front. That cash would've hit your brokerage account instantly. It was yours to keep.
Two things could've happened from there...
As long as Disney stayed above $130 per share, you would earn the $350 free and clear.
On the other hand, if Disney's share price dropped below $130, you would have to buy 100 shares for $130 (at a total cost of $13,000). But you would still keep the $350 upfront payment. And considering we love Disney's stock, it was still a great deal to us.
Sure enough, as we anticipated, Disney's shares climbed after the early success of Disney+. Reports showed the streaming service had more than 10 million subscribers on its first day.
If you made the trade, you got to keep your full cash payment with no further obligation.
Now, $350 may not get your engine revving. I get it. But there's an advantage to this type of trade that makes the income payment even more attractive...
It only takes two months...
For mathematical reasons, selling options that expire in two months offers the greatest returns. In Retirement Trader, all our trades are designed to last about that long.
With that in mind, we can collect $350 from the Disney trade. Then, two months later, we can collect another $350. Two months after that, another $350... and so on.
Over the course of a year, assuming all things remain equal, you can make the same trade six times and earn $2,100. In terms of risk, you would need the capital to buy 100 shares of Disney in case its share price dipped below the strike price. That was the $13,000.
Collecting $2,100 on $13,000 would equal a total return of 16.1% a year... even if Disney stays flat. Do you have a savings account, bond, or other trade that can return that much?
Of course, we don't make this exact Disney trade every two months...
But in Retirement Trader, we always have a stream of potential trades to make. Maybe we'll move on to Coca-Cola (KO) next month... or Starbucks (SBUX) or CVS Health (CVS).
Remember from yesterday's essay, the great thing about using options to make money is that it opens up opportunities across dozens of safe stocks.
That's the trade we make, again and again, without any hidden secrets or wild claims.
We sell an option and agree to buy a stock if we have to... If the stock rises or stays flat, we keep our income. If the stock falls, we have to buy it. But by doing it this way, we actually incur less risk than normal shareholders because the option income lowers our cost basis.
If you thought options were confusing before this week's Digest educational series, I hope you're starting to see that it's a straightforward proposition. And if you thought options were risky before this week's series, again, please consider our track record...
Since starting Retirement Trader nearly 10 years ago, we've earned profits on 95% of our recommendations. That's 468 winning positions out of 492 total recommendations.
Now, if you still don't think this strategy is for you...
Please take a few minutes and watch this video.
A manager here at Stansberry Research knew about our work in Retirement Trader and also knew someone who had recently retired... her own father.
So we journeyed to her hometown in New York to teach him – a former police chief – exactly how options can work for the everyday investor.
Again, I encourage you to take some time this evening to watch the video. And if earning consistent income with less risk than investing in the stock market is something that appeals to you, I believe you owe it to yourself to try out this strategy.
With that, my research team and I will now retire to our spreadsheets and Bloomberg terminals to continue building our steady stream of option trades. After all, it takes a good deal of work to win 95% of the time.
I'll stop singing all the praises of options in the Digest now. But please, don't let this be the last time you ever think about options. They're likely just what you're looking for.
New 52-week highs (as of 12/10/19): Bausch Health (BHC), Bristol-Myers Squibb (BMY), Blackstone (BX), iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO), and ALPS Medical Breakthroughs Fund (SBIO).
In today's mailbag, the feedback from satisfied subscribers to Retirement Trader (and Income Intelligence) continues to roll in. Again, you can learn more about how to safely generate steady streams of income with options right here... And as always, you can e-mail your stories, comments, and questions to feedback@stansberryresearch.com.
"I used to be a buy-and-hold investor who suffered through 50% plus drawdowns in 2000 and 2008. Since I was already retired I knew there had to be a safer way than closing my eyes and hoping. From everything I have learned from Retirement Trader I now am able to produce $4,000 to $5,000 per month while only using half my retirement account. The rest is in cash, gold, and bonds. My favorite example is Salesforce.com (CRM). I like the company and the management team so I purchased 100 shares on March 8th @ $163.70. This morning it was trading for $157.60. The 'buy-and-hold' me would be down $610 in nine months and worried. However, I was able to put on 10 consecutive covered calls (30 delta strikes), collecting $2,354 during that time. The new me is up $1,744 and looking forward to putting on the next covered call later this month for some more safe income. Still learning at 64. Thanks Doc." – Paid-up subscriber Brad F.
"When I went to work out of college I had a boss that was always asking questions to his staff. Ninety percent of the time he already knew the answer. He wanted to know who was going to try to B.S. him and who would be honest and tell him they didn't know. The people that would try and B.S. their way through an answer didn't stick around very long. That taught me it was OK to admit you didn't know. Go do some research and come back with an answer. He was more than willing to help you learn and give you examples.
"This lesson has come in handy as I continue to learn investing strategies. After the 2008 market crash Porter recommended options as a way to take advantage of the market volatility. That was my first exposure to options. It wasn't until Doc came along in with his lessons on options did I finally start to understand them. I have sold puts and used covered calls from the advice and teachings provided by Doc. I sold puts on McDonald's on six different occasions and was finally put the stock at $92.00. It was a stock I wanted to own in my portfolio, and I was willing to pay $95.00 a share to buy it outright. Using options like Doc suggested, I was able to get a stock I wanted at a price I was happy to pay and collect income while I waited. Today I am still collecting dividends on McDonald's." – Paid-up subscriber Dennis S.
"I have been a [Retirement Trader] subscriber since early 2018 and must say the service is both educational and a great way for a novice to get started with trading. I always had an interest, but neither the time nor confidence to trade for fear of making silly mistakes. Since then, I have learned a great deal, made some additional money, and now confidently make covered call trades and a few other unique option trades.
"The service spends a great deal of effort to explain the trades and provides [an] excellent overview of the companies you will be trading. Dr. Eifrig is an excellent writer, keeps things both simple and yet, very informative. The few times I had to call, the subscriber response was spot on and professional. I will never look back and regret my decision to subscribe!" – Paid-up subscriber Michael D.
"On 12/9/2019 I became a Stansberry Alliance member. A significant factor in my decision to join, was a performance analysis of my investment with the Income Intelligence ("II") service. I subscribed to II on 1/26/2019 and committed a portion of my investment portfolio (~$120K) to the current "buy" recommendations. My cost to subscribe was $2K. Through 12/9/2019 I have achieved a 23.54% increase in value, 30% of which came from current income and 70% from realized/unrealized capital gains. Another way to look at this, I have an investment return of 14 times my subscription cost.
"For a conservative strategy, this was frankly, surprising to me. I did enhance my returns with a deep in-the-money bull call on one single recommendation, but a majority of the increase was on investments that had a low beta risk profile. I am excited to learn more with the abundance of information in the Alliance Membership and look forward to this new journey in my retirement career." – Stansberry Alliance member Mark W.
"I just wanted to say that I really enjoyed the email newsletter with Doc Eifrig. It's almost silly how simple and yet how complex options seem to be to those who don't trade them regularly. Thanks for the read!" – Paid-up subscriber Tony B.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Orlando, Florida
December 11, 2019