Make Hundreds or Thousands of Dollars a Month in Just an Hour or Two

Editor's note: It's possible to lower your risk AND trounce the market's average returns.

Retirement Trader senior analyst Matt Weinschenk explained how in the first half of an exclusive two-part interview yesterday.

In today's Masters Series – the conclusion of this interview – Matt explains how to put this strategy to work right away... and why every serious investor should try it at least once...

Make Hundreds or Thousands of Dollars a Month in Just an Hour or Two

An interview with Matt Weinschenk, senior analyst, Retirement Trader

Sam Latter: You're telling me you can consistently make double-digit annual income streams by selling covered calls on safe, high-quality stocks. If this strategy is so easy and so safe, why are people afraid to try it?

Matt Weinschenk: Options seem like a complex thing at first. It requires a little bit of math, and learning a few new terms.

But in Retirement Trader, we spend tons of time on education. We have plenty of educational materials and videos where we walk people step-by-step through these trades. And in every issue, we explain exactly what we're doing and why.

Still, some people don't want to sit down and learn something new, even if it's going to greatly improve their investing results. That's their loss. It's really not that complex once you get into it. Anybody can do these trades. I really believe that.

Sam: When you're looking at the market, how do you go about selecting a stock to sell a covered call on?

Matt: The most important thing is to sell covered calls on stocks that you actually want to own and hold for the long term.

When this strategy works out perfectly, your stock gets called away in two or three months, and that's great – you've made maximum profits. But sometimes, stocks fall a bit. You might end up holding it for longer than that. We look at the highest-quality companies like Johnson & Johnson (JNJ) and Microsoft (MSFT) and Cisco (CSCO). If these stocks pull back a little, that's OK.

Whether it takes a month or two or even longer, we know that these stocks are eventually going to bounce back. And in Retirement Trader, we do all of the fundamental analysis. We make sure these companies have quality earnings, they're trading at a good price – all of the things you do when you look to buy a stock.

You can own these stocks in your portfolio and you'll do well over the long run. But you can use covered calls to really increase your returns over time. Instead of collecting 2% or 3% a year in dividends, you can make 2% or 3% in two months, like we talked about earlier.

Sam: Let's say I want to follow Retirement Trader's latest recommendation. Am I now rooting for the stock to go higher? Do I want it to move sideways? What's the ideal way for the trade to play out?

Matt: A covered call is considered a mildly bullish strategy. You're picking a stock that you like and you're expecting it to go up. But if it drifts sideways, you're going to be able to make better returns as you sell covered calls over and over.

It works great with stocks that go up and stocks that go nowhere. But it also works even when stocks start to fall. Remember when we were talking about cost basis earlier? When you sell an option, the money you receive up front reduces your cost basis. Now you have a lower risk than if you were just holding the stock outright. So you can buy a stock, sell a covered call on it, and even if the stock goes down some, you can still end up making a profit.

Sam: This sounds like a great way to start generating income right away. What's the downside we're looking at here?

Matt: With any investment strategy comes a certain amount of risk. When you sell covered calls, you're still owning stocks. A stock can always go to zero, of course. And selling covered calls doesn't get us off the hook for that. But by lowering our cost basis, we're still going to do better than regular shareholders.

Again, if you bought a stock for $20 and sold a covered call for $1, your cost basis is $19, whereas someone who didn't sell a covered call still has the cost basis of $20.

Of course, you don't want to own stocks that drop drastically. We manage that risk by trading high-quality stocks and using a stop loss in case the trade moves against us. Big, blue-chip companies like Johnson & Johnson or Microsoft rarely suffer sudden sharp falls in their share prices.

Sam: One of the big stories I've seen in the headlines this month is that a lot of the online brokerage firms – Fidelity, Schwab, E-Trade, and TD Ameritrade – have lowered their trading commissions.

People always seem to think that trading options is too expensive, but do those lowered commissions make a difference for the small-time trader?

Matt: Absolutely. The costs of trading everything, whether you're talking about your mutual funds, or ETFs, or commissions, are heading to zero. It's just so competitive. If you're looking to make trades in an online brokerage account, every one of these companies wants your business. The options commissions are totally different than they were even five years ago, and it's making the strategies we use in Retirement Trader even more affordable for folks with a smaller portfolio.

Sam: We've covered a lot of topics today. Is there anything else that you wanted to add before we sign off?

Matt: Just one more thing...

One of Doc's central philosophies is a lifetime love of learning. It's really rewarding to sit down and take the time to figure out options trading. Even if you don't want to be an active trader, it's worth learning how to do this. It only takes an hour or two of work per month to be able to make hundreds or even thousands of dollars in extra income. It takes almost no effort, and in Retirement Trader, we hold your hand through the process from start to finish. That's why we think everyone out there should at least know about this strategy, especially if you're looking to continue to build your wealth.

Sam: Great. Thanks for taking the time to sit down with us today, Matt, and good luck with the webinar on Wednesday.

Matt: Of course, thank you.

Editor's note: On Wednesday, March 22, Doc Eifrig will explain how you can start using this options-trading strategy to earn an extra 16.47% per year on the stocks you already own. Reserve your spot right here.