Editor's note: Regular Digest readers likely know all about Enrique Abeyta by now...

We've featured his work a handful of times over the past couple of years.

Enrique spent more than 20 years on Wall Street before becoming CEO of digital media and e-commerce firm Project M Group in 2016. Then, in mid-2019, he joined his longtime friend Whitney Tilson as an editor at our corporate affiliate Empire Financial Research.

With Empire, Enrique hit the ground running... He now oversees four publications – Empire Elite Trader, Empire Elite Growth, Empire SPAC Investor, and the recently launched Empire Elite Options. Plus, he also works alongside Whitney and the rest of the Empire team on two other research services – Empire Investment Report and Empire Stock Investor.

This weekend's Masters Series previously appeared as a four-day series in Empire Financial Daily this month. In today's essay, Enrique details a powerful trading strategy that can allow you to collect a large amount of cash up front... without ever buying a single stock.

This concept is likely new to many investors – and it can sound intimidating at first. But as Enrique shows, with the right plan, it can be a great way to generate constant cash flows...

You Could Have Made $6,161 Last Year Without Ever Buying a Single Stock

By Enrique Abeyta, editor, Empire Financial Research

Last year was one for the record books...

From mid-February through late March, the benchmark S&P 500 Index fell 34%. The move rippled through the markets, causing investors to panic and go to cash at the exact wrong moment... By September, the markets had recovered to new highs, and they finished the year up 17%.

It was a wild ride. So in December, I asked my readers how they had fared...

To my surprise, my inbox overflowed with praise from readers who told me that my trading recommendations helped them do everything from repair their homes to buy nice bottles of wine with less guilt.

One reader, John M., told me he made $25,470 by following my advice. Another, Ted B., said he turned a $680,000 portfolio into nearly $1 million last year. And maybe my favorite e-mail of all came from Chip E., who said he used his profits to buy $1,000 drones as Christmas presents for four of his grandsons.

I was thrilled to hear from so many of my readers. Many were simply benefiting from trading the stocks I recommended in my Empire Elite Trader newsletter. But a small group explained how they had fared even better without ever buying a single stock...

In fact, they could have made $1,000 on pizza chain Domino's Pizza (DPZ)... $1,500 on athletic apparel maker Lululemon Athletica (LULU)... and $2,150 on streaming giant Netflix (NFLX). All told, you could have made $6,161 by following my advice in 2020... again, all without ever buying a single share.

If this sounds too good to be true, let me explain...

Last year, I started a side project just for fun.

It involved a trading strategy that 99% of regular, everyday Americans have never heard of. But done right, it's a way to lower your risk profile and generate market-beating returns.

A typical investor would be thrilled to make money on 55% of his trades. But my trading strategy went 12-for-12. While that's not the world's biggest sample size, readers who followed my advice certainly weren't complaining...

The results were, frankly, astounding. We made 8% in six weeks on space tourism company Virgin Galactic (SPCE)... 12% in two and a half months on movie theater chain Cinemark (CNK)... and 4% in a month on retailer Dick's Sporting Goods (DKS).

So... what was this strategy? And how did we generate these returns without ever having to buy a single stock?

Astute Digest readers may have guessed that we were selling put options.

Many people think that options are complicated.

Well, everything is complicated when you first learn how to do it!

Think back to when you were a kid, learning to ride a bike. There were a lot of different things to think about, and it was maybe even a bit scary. Now, it's as easy as... riding a bike!

It's the same with trading options... The concept of options is often met with fear and trepidation. But once you learn the basics, it's actually really simple... and it becomes a powerful tool at your disposal.

Done right, options are a great way to increase your returns.

When I first started trading options, a friend warned me about what I was getting into. But trading can be as safe or as risky as you want it to be...

I have had great successes with options – but I've had failures, too. A big part of investing is to know that not everything will wind up making money. That means that we have to create a trading plan that works. It needs to keep your risk low, and your potential rewards high.

The trades need to have structure and simplicity, and my rule for trading stocks also applies here... Plan the trade, and trade the plan.

You must pre-plan every trade, and for each trade... know your maximum risk, maximum rewards, and breakeven points.

Professional investors know this better than anybody. While most of their reputation is made from investing in good old-fashioned common stocks, a much larger portion of the money they have made comes from using options to enhance returns.

Who's at the top of the list?

Legendary investor Warren Buffett... This old-school, traditional "value investor" has made billions of dollars for himself and his investors by trading options.

In fact, during the financial crisis, Buffett bought and sold $5 billion worth of options... and he still uses them to this day.

But you don't have to be a famous investor like Buffett or a hedge-fund manager to trade options... You could also buy and sell options yourself – just like you do with most other asset classes – right from your brokerage account.

Options are powerful because they can enhance your portfolio's returns. But as the world knows, there's no such thing as a free lunch. Options increase returns by adding risk to a portfolio.

Remember, risk is a good thing – it's the other side of reward!

But in trading options, risk needs to be used sensibly – to your advantage. That's where option strategies come in...

One classic strategy is to use options as a hedge. This means they are intended to reduce potential losses for an investor. In another case, they can be used to generate income, enhancing the returns of a portfolio. And sometimes, they are used for pure speculation.

Any one of these cases can wind up being immensely profitable – if implemented correctly. But people have misconceptions about options...

They think options are incredibly risky and could wipe you out in a few bad trades. Of course, there's a grain of truth here. But it also involves a lot of common sense.

In fact, if done right, they can be less risky than buying stocks outright.

Selling puts can help you do just that. It's an income-generating strategy that takes what you already want to do in your portfolio, and gets you paid for it – up front.

It's used by some of the world's best investors, but it remains largely unknown to the majority of Americans.

Selling options allows you to collect large amounts of cash up front without having to own a single stock.

You can sell calls and puts on thousands of companies every single day, and collect cash, or "premium," as soon as you sell the option.

Next, I want to explain how to use this strategy to generate constant cash flow right to your brokerage account...

Let me use an everyday analogy to show you how this strategy works...

Say you walk into a clothing store and see a nice sweater on the rack. It costs $50.

You love buying great-quality sweaters at good prices, but you think you can get it for an even better price.

You know that retail in that area hasn't been doing so well, and there's a chance that the prices of the store items could continue to come down.

You go to the store owner and say, "If that sweater goes on sale, I'll buy it for $40 two months from now."

You assure him that your offer is good any time over the next two months, no matter what happens... even if the price of the sweater falls below the $40 that you offer him.

The store owner agrees to your offer, and hands you a $5 bill. He's grateful that he'll be able to sell the sweater to you for at least $40 any time over those next two months.

Not bad, right? You're getting paid to do something that you'd be willing to do anyway.

And that means you've effectively sold the cashier a put option.

You (the put seller) decided to enter into a contract with the store owner (the put buyer) that gave him the right, but not the obligation, to sell you the sweater for $40 sometime in the next two months. In return for this agreement, he paid you $5 – which you keep no matter what happens.

There are two ways in which your agreement with the store owner could work out...

1. Someone buys the sweater for $50.

You miss out on the sweater, but you pocket the $5 and walk away... and the contract between you two is done.

2. Nobody is willing to buy the sweater for $50, and the store owner has to lower the price.

He can exercise his right to sell you the sweater for $40, but you still get to keep the $5 that he gave you... so you effectively spent $35 to buy the sweater.

If the price of the sweater gets discounted to $45, you still get to keep the $5. If the store owner can sell it on the market to someone else for $45, he surely won't sell it to you for $40.

Even if the price of the sweater falls to $39, you get to keep the $5 the store owner paid you... but you have to buy it at $40. In this case, you still get to keep $4.

In fact, you make money on this contract all the way down to $35, which is the breakeven price for you on this transaction.

It's important to point out that both parties walk away satisfied from this transaction. It's not a zero-sum game... meaning that it's not that one person loses everything and the other wins everything.

The store owner is content because whatever happened, he was able to sell his sweater for at least $40.

And he was happy to pay you the $5 as "insurance" in case the prices of clothing in his store took a hit and had to be deeply discounted.

You, on the other hand, walk away happy because you collected $5 in exchange for agreeing to buy a sweater that you were already willing to buy at $40, and entered into a contract that would allow you to buy it for that price should the store owner want to sell it for that much.

You probably don't shop for clothes in this way... But this example shows how you can use this strategy to buy stocks that you would be willing to own at even more beaten-down prices while getting paid cash to do so.

Now, let's see what this might look like with a real-life trade I recommended last summer...

Last June, I recommended buying shares of space tourism company Virgin Galactic (SPCE) outright. In that issue, I also noted that aggressive traders could sell the $14 strike price SPCE put options for $1.25 per share in premium ($125 per contract), with an expiration date of July 17. At the time, SPCE shares were trading for more than $16.

The trade could have worked out in two ways by July 17, 2020...

1. SPCE traded for more than $14 per share.

In this instance, we would have simply kept the $1.25-per-share premium, or $125 per contract. That would mean a 9% return on your capital at risk in a little more than six weeks (the $125 premium divided by the $1,400 potential obligation, since each contract controls 100 shares).

2. SPCE traded for less than $14 per share.

If SPCE closed below $14 on the July option-expiration day, we would have been assigned shares at a cost basis of $12.75 (the $14 strike price minus your $1.25 in premium), or a 22% discount to the prices at the time of my June recommendation. That would have been an incredible entry price on a company we already liked at $16 per share.

By July 17, SPCE shares had run up 46% to $24. Since the share price was way above our strike price of $14, the options expired worthless... and we booked $125 per put contract that we sold.

If this still sounds confusing, don't worry...

Tomorrow, I'll continue to "pull back the curtains" on this incredibly powerful strategy... debunk the biggest myths when it comes to options trading... and explain why you should never waste your time collecting dividends again.

Regards,

Enrique Abeyta

Editor's note: Last year, Enrique logged a 100% win rate in a special project using his options-based approach. And as he said, you don't need to be a famous investor like Warren Buffett or a Wall Street fund manager to use this strategy. Anyone can do it...

To prove it, Enrique recently sat down with Empire Financial Research Editor in Chief Sam Latter to show him exactly how it works. And for a limited time, you can join Sam virtually as he tries to collect $368 up front in just 60 seconds.

Plus, Enrique explains all the details about this moneymaking strategy... including a special "twist" that can lead to substantial gains. Watch the full trade right here.