We've Found a Better Game to Play

You can get everything right – and still be wrong... We've found a better game to play... This new view on investing really changes things... A different look at an 'old-style' tech company... Don't 'ignore the rent' in the stock market... My recent meeting with a retired police chief...

Editor's note: We've handed the keys to the Digest over to Dr. David "Doc" Eifrig...

Doc is taking over for a few days to explain all the important details about a topic that the vast majority of investors avoid... options.

In yesterday's Digest, Doc explained how he learned to do "magic" in his 20s... discussed a key component of learning that often gets overlooked by many adults... and detailed why you owe it to yourself to consider taking the next step in building your wealth today.

Today, Doc continues our three-day educational series with more about how this new view on investing changes the game. And as you'll see, it can be a lot like owning a rental property...

Look, the stock market is tough...

You can get everything right... and still be wrong.

You can investigate every aspect of a business, study its financial accounts, interview customers, speak with management, model its valuation, and know every single detail about a business... And yet, when you buy the stock, it goes down.

Or maybe more likely, its share price just floats around... never gaining any real traction.

That's what happens with most stocks...

Over a few months or a year, luck matters more than anything when investing in stocks. Even if you're right, it can take much longer than you expect for a stock to head higher.

That's the game most investors play. You need to find stocks that go up. And that's hard. But in Retirement Trader, we don't play that game. We've found a better one.

I (Doc Eifrig) have taken over the Digest for a few days, and you won't be happy about it...

That's because I'm talking about options. And many everyday investors hate options.

Your broker, your financial advisor, your dentist, and your spouse will all tell you not to trade options. But that's just because they misunderstand them... They think it's complicated and risky.

But when used correctly, options can also do something magical for you. I learned how to do it in my years at investment bank Goldman Sachs (GS).

You see, rather than ramping up risk, we use options to get more conservative with our investments...

We use options to generate income from stocks by selling an option and collecting money up front at the start of our trade.

That means we don't need to pick stocks that go up to make money. We can make profits on stocks that rise, stay flat, or even those that fall a little bit.

In short, our entire investment strategy changes from searching for stocks that will go up... to searching for stocks that won't go down. That sounds like a simple semantic change, but it's much more than that...

This new view on investing really changes the game...

At face value, the strategy makes sense...

If you have more ways to win, your chances of success rise. You can still go searching for stocks that will rise... like you always do. And if they stay flat, you still get to profit.

But if you think a little deeper, you'll see the true opportunity... This isn't just a safety net that helps you out when stocks don't rise. It opens up an entire world of new stocks...

Everyone is out there chasing the same hustle. They want growth. They want booming industries. They want earnings per share to shoot up. They want a frenzy of investors who will follow them into a stock and push the price up. That's what everyone looks for.

Everyone is competing at the same game. And of course, the more competition... the more difficult the game gets.

But let's say I suggested you invest in Oracle (ORCL)...

It's an "old-style" tech company. And sure, it has some good things going for it...

It has a lot of free cash flow. It pays a dividend. And plenty of customers keep using its products to run their businesses.

But there's no way you would consider Oracle to have the same growth prospects as Alphabet (GOOGL), Facebook (FB), or some smaller, younger tech companies.

If you buy the stock of a mature, profitable company like Oracle today, you could expect to earn about 7% per year over the long term (but with a lot of month-to-month noise). And you wouldn't expect the stock to soar since its high-growth days appear to be behind it.

When presented with such an opportunity, most investors simply pass. Sure, it's a safe stock that you can likely hold for the long term... but so is cash.

With options, we can look at Oracle differently...

We figure it's a sturdy business... And its shares are cheap today. It trades for 17 times earnings and 15 times free cash flow.

Even though Oracle's stock could rise, it likely won't rocket higher from here. And more important, we don't think it will fall too far from its current price of about $55 per share.

Now, we can take our options strategy and use this "stock that won't go down" to earn better profits. We've taken a forgotten, useless stock and turned it into an exciting opportunity. In my Retirement Trader advisory, we did just that this fall...

We sold an option on Oracle and collected $1.32 per share instantly (when the stock traded at $53.81 per share). Our trade only took two months to play out. That means we could use the capital six times over the course of a year and earn about 15% on that capital at risk.

A stock that goes nowhere for everyone else can earn us about 15%.

We can do this over and over with boring, forgotten safe stocks...

If you've never seen opportunity in stocks like Walmart (WMT), Wells Fargo (WFC), Coca-Cola (KO), MetLife (MET), Walgreens Boots Alliance (WBA), CVS Health (CVS), and other stalwarts... it's just because you haven't looked at them the right way.

Would you buy a rental property without tenants?

Here's one last way to think about it today...

Imagine that there's no stock market and the only investment opportunity available to you is real estate. You already own a house, so you buy another property just for speculation.

One way to make money in real estate is to buy a home in an improving area, wait a few years as the conditions in the area keep getting better, and sell it for capital gains. Your total profits would simply be the difference between your buy and sell prices.

However, you can also earn income from rent along the way...

You would have to be crazy not to rent out the property in the meantime. It's a productive asset. Get some tenants in there and collect money while you wait for the capital gains. Adding income to the equation completely changes the return on your investment.

But so many stock investors ignore the rent!

They buy a stock, cross their fingers, and hope its price will rise so they can then sell their shares to a "greater fool" who will pay them more at some point in the future.

However, in the meantime, an investor can earn as much as thousands of dollars using options. That's the simple transaction I want you to take a few moments to understand.

I realize I haven't gotten much into the specifics of Retirement Trader's strategy yet...

Instead, we've been a little philosophical about things.

I've done that intentionally. That's because most investors' objections to options don't come from the details of a particular trading method or an informed analysis. Rather, it's their emotional response to a bad experience or something "somebody told me" once.

I think you need to get over those preconceived fears.

As I said earlier, we use options to be more conservative than a typical stock investor and earn steady streams of income. But it's not a hard concept... Anybody can do it.

In fact, last month, I met with a retired police chief who has almost no financial experience. We sat down at a lakefront property in New York, and I showed him exactly how to complete an options trade. (And we filmed the whole thing so we could share it with you.)

This isn't the first time I've done such a thing... In the past, I've taught family members, coworkers, and thousands of readers just like you exactly how to make these trades.

You can view my session with the chief right here.

In the meantime, I'm running the Digest for one more day. Tomorrow, we'll get into the hard details about just how much income we can help you generate with our strategy.

New 52-week highs (as of 12/9/19): American Financial (AFG), Bausch Health (BHC), Bristol-Myers Squibb (BMY), Blackstone Mortgage Trust (BXMT), Alphabet (GOOGL), iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO), ALPS Medical Breakthroughs Fund (SBIO), and Sysco (SYY).

Today's mailbag is overflowing with feedback from subscribers about their experiences through the years with trading options... and more specifically, their experiences with Retirement Trader. What's your story? Tell us at feedback@stansberryresearch.com.

"I have been following your Retirement Trader recommendations since I joined this past January. I have been very pleased with the results as well as learning different methods to trade covered calls. I had been trading covered calls previously, but did not understand the finer points of trading that you have demonstrated and taught. I had several losing positions in my previous experience, but following your recommendations this past year I have had a 100% success rate with the trades I got into. I averaged 2.5% per trade and 15.5% on a weighted annualized basis. Thank you for your work and training that you provide with this service. It has helped me close open, losing trades that I had on a positive basis. The education provided alone was worth my getting into your Retirement Trader service." – Paid-up subscriber Rod P.

"As an Alliance member, I think I have been following Doc from the start... I have been using Doc's teachings and methods to generate the monthly money I need to keep mom and dad in the nursing home. Every word Doc says is true. Doc's teaching is so good. I [sell options] when I want to buy a stock, and I am just as happy if the option expires without having to buy it. If you are a Stansberry subscriber and you are not doing this you are throwing money away. Thanks to Doc, and happy holidays to Porter and everyone at Stansberry." – Stansberry Alliance member Neil S.

"I've been a regular Retirement Trader reader for about 10 years. I read all his articles and I learned a lot. He is absolutely the best. I am retired and support my meager pension with trading/selling put options. My early profit is between $50,000 to $60,000 Canadian. I'm more than 80 years old and my income from trading options lets me have a winter vacation in Mexico every year and a spring vacation in Europe. Thanks Doc." – Paid-up subscriber Jerry H.

"I am retired and have no fancy pension to support me and my wife. I have been a subscriber to Retirement Trader for quite a few years now and it has provided me with a steady stream of income (which I can elect to treat as capital gains for better tax treatment) to help out with my other investment vehicles providing my retirement income. Being financially conservative I do not overextend myself but most years I can make a steady $30,000 a year from my margin accounts using this service. Not a lot, but it sure is great having that extra income. I have made quite a bit of money off stalwart companies like Johnson & Johnson, Disney, and similar [ones], and this happens over and over again. Doc recently recommended selling J&J, which I acquired cheaply as a result of being assigned on a put, and so that gravy train has come to an end but there will be others I know." – Paid-up subscriber George G.

"Doc, I love your service. I've been trading options since the late '90s. I even brought you a sheet at the conference this year showing option prices in fractions. Boy, I must be getting old. Keep up the great work!" – Paid-up subscriber Fred W.

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

Dr. David Eifrig
Orlando, Florida
December 10, 2019