The Last Word on Options
The last word on options... You can already beat the market... We may be set for a 'no-log-in' decade... Big cash flows from big blue chips... 'The best trading product ever to exist in our industry'... Who can't handle options... A real research example...
You already know more about how to use options profitably than most...
In fact, since I (Doc) know many readers checked out on this five-part options series, you likely know more than most Stansberry Research subscribers – who we consider to be among the best-informed individual investors in the country.
I do apologize for such a long discussion of options. I couldn't help it... If I'm right about my outlook for the market over the next several years, investors will need to expand their investment "toolbox" to generate the kinds of returns they need to meet their financial goals.
If you don't know what I mean, please read the previous installments of this series (especially yesterday's Digest) to see how options will change the way you think about building wealth.
Today, though, I'll reveal even more...
I know what it's like to sit and watch your stocks...
On occasion, you feel good as the market rises. At other times, its moments of pure terror.
But most of the time, you could die from boredom. Your account posts a tiny 0.5% gain this month, a 0.2% loss the next, and over time you hope the difference adds up to something substantial.
And that's if you're lucky. If you checked your investment accounts in 2000 and forgot about them, you could have logged back in in 2006 and seen no change. The same could be said from 2007 to 2012.
We all work hard to earn income and set aside savings to build wealth. Watching it do nothing for five or six years is painful. You could have taken extra vacations or bought a new car. Instead, you socked money away like you were supposed to.
Why let it just sit there?
And it may just sit there...
My outlook remains bullish for now, but I'm nowhere near as bullish as I was five or eight years ago.
Today, unemployment is about as low as it can get – meaning it's "put up or shut up" time for real economic growth to take hold. Meanwhile, stocks have been marching to higher valuations without a single hiccup.
If the Federal Reserve (and the European Central Bank, and the Bank of Japan...) lightens up on its monetary stimulus, we could be in for another long stretch of "no need to log in" asset returns.
That's why we love to generate "income from nowhere" with options...
Even when the market goes nowhere, we can sell options to generate positive cash flows.
These options have an intrinsic value of essentially zero. But we can earn hundreds or thousands of dollars each time we do it... and we can do it multiple times a year on the same stocks.
In examples we've shown in this series, you can earn $800 a year on a $6,400 investment. In the end, you're still holding the stock and you can do it... even if the return on the stock itself is zero.
Most important, we don't take outsized risks. We don't need leverage. We don't need to find risky small caps or unproven companies.
In my Retirement Trader service, we've used this strategy on bona fide blue-chip companies like Eli Lilly (LLY), Microsoft (MSFT), Intel (INTC), Johnson & Johnson (JNJ), Walgreens Boots Alliance (WBA), CVS Health (CVS), United Technologies (UTX), Wells Fargo (WFC), Oracle (ORCL), McDonald's (MCD), Cisco (CSCO), Apple (AAPL), Morgan Stanley (MS), and others.
We can even use wide-ranging index funds like SPDR Sector Select funds and others to earn healthy returns from low-risk diversified baskets of stocks. We've done that more than two dozen times.
And we've shown how collecting these upfront cash payments can reduce your risk relative to owning stocks outright.
This strategy isn't theoretical... We put it to work every day in Retirement Trader.
Since 2010, we've sold covered calls on a total of 171 positions and we've booked positive profits on 162. That's a win-rate of 94.7%. And again, lest you think the profits are small, our average annualized gain comes to 16.4% a year.
Over the same period, the S&P 500 has returned 14.6% (with dividends reinvested) within the wild throes of an historic bull market.
You probably know that Porter grades our newsletters every year in the annual Report Card...
It's an honest and open ranking. He does it to keep the analysts working hard and the readers informed. And he has given out more than a few "F" grades over the years.
But every year since its 2010 launch, Retirement Trader has received an "A+" ranking.
When he reviewed the results for 2014, Porter said, "[Doc's] conservative use of options has allowed subscribers to increase their returns while lowering their risk. It has led to the greatest performance we've ever seen in the business."
After 2015, Porter said, "Let me be clear... If you aren't reading Retirement Trader, you're missing out on the best trading product we've ever published – and likely the best trading product ever to exist in our industry."
And in the latest Report Card for 2016, Porter said, "These are virtually all cash profits. There's some share appreciation here, but most of these gains are in the form of option premiums, paid to you in cash. If you're looking for a way to boost your income in retirement, I'd urge you to read Doc's Retirement Trader. It's the best, most consistent way to generate huge amounts of income from your portfolio."
As we seen, those kinds of low-risk returns are supposed to be impossible in finance. But we've proven the "experts" wrong.
Again, this is a low-risk strategy, not a "no-risk" strategy...
There will still be times when your stocks are down (though less so than those of regular shareholders)... so sticking with high-quality stocks at good prices will determine your success.
It will also take a little bit of effort to become proficient with options. In general, I tell potential Retirement Trader subscribers the following:
- Don't subscribe if you can't handle some volatility in the stock market. We'll see our stocks move down. Even though they'll be down less than those of regular plain old shareholders, they will still be down. A track record of 94.7% still has 5.3% losers.
- Don't subscribe if you can't commit at least $20,000 to $25,000 toward this strategy. Options traders need to work in lots of 100 shares, and we need to have multiple positions to make sure we're diversified. I know it's tough to make money when you don't have money. But there's nothing I can do to reduce the capital requirements for this strategy. And it's just a fraction of a percent of what you'd need to be qualified to invest in a hedge fund or other vehicles that use options – and I suspect their returns will lag our own.
- Don't subscribe if you're not willing to spend a few hours learning. I'd say you should be ready to make your first trade after about an hour of reading. By the time you make your third trade, you'll really understand how the whole system works.
We spend the bulk of our time educating our subscribers...
In fact, we do everything we can to make sure they understand every aspect of every trade we publish.
When we recommend a new trade, we include a detailed description of all the possible scenarios that could play out. You will always know exactly what to do, what you're risking, and what you stand to gain.
For example, here are the details on an actual Retirement Trader recommendation from January...
Today I recommend you...
Buy 100 shares of M%#& for about $31.30, and
Sell, to open, the M%#& March $31 calls for about $0.90.This represents a total outlay (or "net debit") of $30.40 per share (the $31.30 stock price minus the $0.90 we receive from the call premium). Remember... you are buying 100 shares of the stock for every call option you sell against it.
Here's how the math works...
Income from sold call premium of $0.90 is $90.
Purchase of 100 shares of M%#& at $31.30 is $3,130.
Initial outlay: $3,040.If M%#& shares sell for $31 or more on March 17, the stock will be "called" away from you at $31 a share. This gives you a net gain of $0.60 per share on the position. Plus, you'll receive the $0.24 dividend in February. This is about 2.8% in two months, for an annualized return of about 16.6%.
Of course, if the stock trades for less than $31, your calls will expire worthless... And you'll still own the stock, uncovered. You can keep the future dividend stream from 100 shares of M%#& – which should amount to $96 a year per 100 shares – plus the $90 premium. This is a total of $186 (the $90 premium plus the $96 dividend) on a $3,130 investment, or about 5.9% this year.
You may still not understand all of the "jargon" just yet, but don't be dissuaded...
Instead, you should note that we collected $90 on a $3,130 investment... and that we can do that – or something similar – six times a year. That means $540 on a $3,130 investment, even if the stock goes nowhere. That's a 17.3% return.
I removed the symbol above just to prevent anyone from reading too quickly and entering an old trade. While we're not day-traders by any stretch, it's important to enter our recommended trades within a week or so.
But I didn't remove the symbol out of secrecy... The great thing about this strategy is that, at any time, I can rattle off half a dozen or so stocks that look ripe for a covered-call trade.
In fact, if you joined me for this afternoon's webinar, you already heard all the details on one of my current favorite trades that you can make in your own account immediately.
But if you weren't able to join us this afternoon, don't worry. You aren't out of luck...
As part of today's special event, we're also offering a massive discount on my Retirement Trader service...
If you've ever considered joining us, there has never been a better time to do so.
Until midnight Eastern time tonight, you can claim two full years of Retirement Trader for less than the usual cost of just one year.
We'll likely never be able to offer a better price on this service... And right now, we're also including two full years of access to my income-focused Income Intelligence advisory, access to my "Master Course" educational video series, and much, much more... absolutely free.
Click here for all the details. But please don't delay... This offer is only good until midnight Eastern time tonight.
New 52-week highs (as of 3/21/17): Tencent Holdings (0700.HK), China Construction Bank (0939.HK), Longfor Properties (0960.HK), Industrial and Commercial Bank of China (1398.HK), National Beverage (FIZZ), short position in Hertz Global (HTZ), and Two Harbors Investment (TWO).
What did you think of today's event? I'd love to hear from you. Please let me know at feedback@stansberryresearch.com.
"[A] year ago January I put my toe in and did it... I started selling [options]. My first two trades expired worthless. I kept doing it in greater and greater numbers. Then election volatility beat me up in good style. Thinking that I had lost a lot of money I was nervous. I kept at it. I ended up making a $130 profit for that month. ... Doc, I owe you a debt of gratitude. You showed me why options traders make lots of money. I knew from the first time I saw this that it was the only way to go.
"Sure, today I have stocks and bonds. But using options the way that they were intended is a financial source that most people never realize. Just like all of the excuses you listed the other day I realize that they are just that... excuses. Thank you so much. This will be passed down to my children... they are already interested." – Paid-up subscriber Jeff S.
Regards,
Dr. David Eifrig, Jr. MD, MBA
Baltimore, Maryland
March 22, 2017