Before the Thanksgiving holiday, I want to show you how to get paid upfront on every single investment.
In fact, this strategy could hand you easy gains of 36% from big and safe stocks like Microsoft (NASDAQ: MSFT).
I want to take a minute to tell you a funny story. You see, in South Korea, there’s a widespread belief that you can die if you sleep in a closed room with an electric fan that’s turned on.
I’m not making this up. How could I?
Depending on who you ask, these people believe you’ll die from hypothermia, suffocation or carbon dioxide poisoning.
One of Korea’s largest fan manufacturers puts a warning on its fans telling people that their product could cause suffocation or hypothermia.
Of course, electric fans aren’t really deadly. And there’s slim evidence of even a single death has been caused by an electric fan.
But that doesn’t stop the entire country of South Korea from believing it. From their perspective, electric fans can absolutely kill you – so they wouldn’t stand to gain much by doubting this belief.
Laugh if you must – but there’s a similar irrational fear that you probably hold near and dear as an American investor.
In short, Americans seem to have an extreme aversion to selling puts.
Like our Korean friends who fear electric fans, American investors have “heard of” stories of people losing everything after selling puts. Or maybe they just believe it’s inherently risky.
And this belief has certainly been reinforced by the mainstream financial media.
Simply put: most “experts” in the financial media portray this kind of strategy as too complicated for the average investor. They want you to buy the next hot stock.
For whatever reason, there’s no doubt that this fear of selling puts exists. The fear is real. But the evidence for this fear is scant.
On one hand, electric fans can kill you – if you drop them in with you while you’re taking a bath. But only under those particular circumstances are they even remotely dangerous.
And yes, selling puts can be dangerous – but only if you use them in incredibly stupid ways – the equivalent of dropping an electric fan into the bath.
But I can guarantee that once you learn how to use this type of investment, you will immediately begin to see the whole world of finance in a different light. Instead of “paying” people to invest your hard-earned money, you learn to get paid to invest. I know it sounds like a strange concept, but hear me out because it’s a strategy that professionals have used successfully for years.
The first key to selling puts safely and profitably is knowing the real risks in owning a company’s shares. We need to assure ourselves that the companies we sell puts on are fundamentally sound.
For instance, take Microsoft (NASDAQ: MSFT).
It’s a company that we feel comfortable owning for the long haul mostly due to its unwavering quest to please shareholders. The company continually buys back stock and pays a healthy dividend of 2.0%.
Microsoft shares are currently trading for $83.20.
In my opinion, the price is inflated. I prefer to pay $82.
Remember when I said we want to get paid to be investors? Well, given our desire to own Microsoft shares at $82 – we can get paid. Think about that: we can get PAID to agree to buy a stock at a lower price that we prefer.
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We can sell one put contract that gives us the ability to buy 100 Microsoft shares at $82 a share – and collect an immediate $102. But, in most, cases, you only have to put up 20% of the required cost of the 100 shares when selling a put. In this case, our maintenance requirement would be $1,640.
One way to think about it is that you’d receive $102 on a $1,640 investment. This works out to a return of 6.2% on your money over 36 days or 62.9% annually.
To me, this safe 6.2% return is superb given the current yields on bonds and other safe investments . . . and the likelihood of Microsoft raising dividends going forward.
Remember, and no matter what happens, we get to keep that $102.
But for the sake of understanding, we should examine the alternative – Microsoft shares closing below $82 by option expiration.
In that case, we’d keep the $102 and be forced to buy Microsoft shares at $82 per share.
In this case, we’d actually own the stock for $80.98 per share – that’s the $82 strike price minus the $1.02 premium. That 2.7% less than Microsoft’s current market price.
The important thing to remember is that if the stock trades below $82 by option expiration, you become a shareholder just like everyone else … but at a discount.
Simply, selling puts is not inherently dangerous. If used correctly, it’s no more dangerous than any other type of investment.
And if you’re interested in income, it’s something you owe to yourself to consider.
Click here to access my put selling webinar training. It could be the easiest way to boost your income in 2018.