Editor's note: Whether you're a new investor or a stock market veteran, you've likely heard the warning...

Stay away from options. They're too risky.

But whoever spoke those words either doesn't understand how to safely use stock options... or didn't want to take the time to explain it all to you in detail.

You see, for decades, sophisticated traders have used options to profit and reduce risk. Our colleague Dr. David "Doc" Eifrig mastered the skill while working at elite investment banks, including Goldman Sachs.

Over the past decade, he has shown thousands of folks the right way to trade options – safely and profitably – in his Retirement Trader advisory (and more recently, in his Advanced Options service, too). Since launching Retirement Trader in 2010, Doc has logged 468 winning positions out of 492 total recommendations – an incredible 95% win rate.

In this weekend's Masters Series, we're sharing a pair of Doc's lessons that will make the concept easy to understand... and show you how you can use options in different ways. Today, in a classic essay that we've updated with a recent example of this powerful trading tool in action, Doc shows you how to become a "stock market landlord"...

One of the Greatest Income-Producing Tools in the Stock Market

By Dr. David Eifrig, editor, Retirement Trader

If you can understand real estate, you can understand the greatest income-producing tool for retirees.

Right now, my Retirement Trader subscribers understand this tool... They're regular investors (just like you). And they're using this tool to pull thousands of dollars out of the market every month.

Today, I'll show you how you can do the same. It all starts with the familiar real estate idea of offering owners a lower price than what they are asking...

This strategy involves one of the most powerful – and most misunderstood – financial tools ever created: stock options.

When most folks hear the words "stock options," they think of risky bets on volatile moves in the stock market. Nothing could be further from the truth.

A stock option is simply a contract between two people. One type of option is called a "put option." The person who buys a put has the right – but not the obligation – to sell a stock at a given price, in a given time period. The person who sells a put has the obligation to buy a stock at a given price, in a given time period.

Done properly, selling put options is one of the greatest money-making strategies ever created. And it's simple, once you get the hang of it.

By selling puts, you can collect regular cash payments by offering to buy stocks at a discount.

Most of the time, these "discount" offers are not accepted. Most of the trades work out so that my subscribers get to keep the cash payments and walk away. But my service's history shows that around 30% of the time, our discount offers are accepted... And we are obligated to buy the shares.

When that happens, we turn into "stock market landlords."

Conventional landlords collect regular income on properties they own. It's a time-tested plan for getting a good, double-digit annual yield on your money. You also collect income on properties you own. Except these properties are in the stock market.

That means that unlike conventional real estate investing, this type of investing doesn't involve bank loans, fixing toilets, or dealing with tenants at 2 a.m.

Here's how it works...

After you buy a stock, you can enter the options market and sell someone the right to buy your stock at a higher price in the future. In return for agreeing to sell your stock, you collect cash up front.

And no... using options in this way has nothing to do with the risky, "all or nothing" options strategies many people use. This is a very safe strategy. It's called "selling covered calls."

Again, this amounts to buying shares, then selling someone else the right to buy the shares from you at a higher price. I know it might sound like a strange transaction. But it happens millions of times a day...

Let me walk you through some numbers so you can see how useful of a tool it is if you're looking for safe income...

In August, I told my Retirement Trader subscribers about a company that was thriving, thanks to its incredible brand and foray into online streaming. You know the business...

It's Disney (DIS).

At the time, you could buy DIS for $131.48 per share. Let's say you bought 100 shares at the time, for a total of $13,148.

Right after buying your shares, you were able to sell someone the right to buy your shares from you for $130 per share at any time over the next two months. You collected $5.92 per share ($592 per contract) for selling that right. That gave us an initial outlay of $125.56 (the $131.48 stock price minus the $5.92 we received from the call premium).

In October, DIS was trading for more than $130. So you would have sold at $130 and kept the $592 you got for selling the call... like a landlord selling the property to his tenant.

Because we sold covered calls with a strike price below the share price, we lost $1.48 per share when shares were called away from us. So our net gain was $4.44 (the $5.92 premium minus $1.48 per share). That's a safe return of about 3.5% ($4.44 divided by the $130 strike price) in less than two months.

Now... if DIS hadn't been trading above $130, you would have been able to do pretty much the same trade all over again.

Do this "3.5% in two months" trade six times in one year and you can make 23%. You'd also collect DIS's safe 1.2% regular dividend. On a $50,000 stake, that would generate more than $11,000 a year.

And you need to understand... this trade wasn't just hypothetical. In October, my Retirement Trader subscribers closed their covered calls on DIS for a 3.5% gain in less than two months.

In Retirement Trader, we sell options on what I call "sleep well at night" ("SWAN") stocks.

SWAN stocks are companies and businesses that held up in the latest recession and are improving as the global economy putters along. They have strong balance sheets, good cash flows, and long histories of rewarding shareholders through dividends and buybacks. These companies are also often leaders in their industries.

We're collecting cash by making discount offers on great businesses that are rarely accepted... And when they are accepted, we're able to use the covered-call strategy to generate even more cash.

Of course, this strategy takes a little bit more work than what you might be used to... But as many of my Retirement Trader subscribers have discovered, it's simple to learn... and simple to use once you get the hang of it.

Becoming a "stock market landlord" is well worth the extra effort.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: If you've never traded options before, don't worry. Doc believes anyone can do it... as long as they're willing to put in a little bit of time to learn the basics.

A few weeks ago, he traveled to New York to show a retired police chief with no investment experience, step by step, how to use options to make $1,000 in only 15 minutes. We filmed the entire transaction to show you Doc's powerful strategy in action... as well as why it has a 95% win rate over the past decade. Watch Doc's presentation right here.