Everyone loves a great deal! Whether shopping for a flight or a new pair of New Balance sneakers, I always want the best price.
The same is true for my investments (click here for details).
Most investors tell me that they use “Limit Orders” to get the best price when buying a stock. But that’s a HUGE mistake.
This morning, I sat down with income trading expert Andy Crowder. He has a 100% fresh approach to trading stocks, collecting income, and buying stocks at YOUR best price.
This strategy is already used by Warren Buffett, hedge funds, and top Wall Street traders. But it’s overlooked by 73% of my readers.
Next week, I’m hosting a LIVE webinar with Andy to share all the details:
>>> Click here to RSVP today – it’s 100% free to attend.
IAN: Warren Buffett NEVER likes to pay full price for a stock. He’s always looking for a discount and a great deal. Tell me about how you ALWAYS get the best price when buying a stock?
ANDY: While I am not going to say that I always get the best price when buying a stock, I can confidently state that I always get the price I want to pay. Everyone knows that the goal when buying a stock is to buy low and well, sell high when exiting the position.
For most investors attempting to do so is a fool’s game. However, there is a way to buy a stock at the price you are willing to pay. It’s a strategy known as selling puts.
IAN: Selling puts is growing in popularity. But my surveys show that only about 27% of our readers are familiar with this strategy. Why is that the case?
ANDY: There are a variety of reasons, and we don’t have time to explore them all right now.
The leading cause is that most investors don’t understand how to use the strategy to their benefit. Most investors and so-called “experts” in the financial media think that selling puts is too risky or complicated. And frankly, for most professional brokers or advisors, there is no money in it.
But I can promise that once you learn how to sell puts for yourself, you will begin to see the whole world of investing differently. Because you can buy stock a stock at the price you are willing to pay, and collect extra income along the way.
Most investors are completely ignorant of this fact. And it’s not their fault. The investment community hasn’t bothered to educate investors on this little-known way to buy stocks. Instead most investors just set a limit order and wait for the stock to hit their price. They lose out on the ability to collect income and moreover, opportunity cost.
IAN: While many people aren’t selling puts, they MAY be familiar with another very similar strategy called “Covered Calls.” Tell me about the similarities.
ANDY: Covered calls are a far more popular strategy. It’s a great strategy for income and to lower the cost basis of stock. Interestingly enough, most investors don’t realize that selling covered calls and selling puts are synthetic equivalents. The nomenclature is different and the positions are composed of different legs, but the risk-reward picture is identical.
IAN: Has Buffett used “put selling” or a similar strategy with Berkshire’s investments?
ANDY: Warren likes to say that he simply buys great companies, and holds them forever. That’s a good story, and it’s somewhat true. Today, he tells folks to simply buy an index fund like the S&P 500.
It’s less well-known that Buffett has sold options on numerous occasions. For example, he sold puts in Burlington-Northern (BNSF) in 2008. In late 2008, Buffett sold more than 750,000 puts on BNSF and sold even more two days later. Both transactions were placed to accomplish the same goal. If shares of BNSF declined before the options expired, Buffett would get a chance to buy more shares at a big discount. If BNSF pushed higher and remained above his put strike he would get paid for basically doing nothing. Well, BNSF did move higher, the options expired worthless in December and Buffett pocketed over $13 million in income without buying one share.
Warren Buffett used the same strategy between 2004 and 2008 as he sold long-term puts on the four major indexes of the U.S., U.K. Europe and Japan. He did this for three reasons.
First, he was bullish on the global markets. Second, he wanted to generate income. And third, he wanted to buy at lower prices if the global markets kept falling. All three reasons are the same reasons that selling puts makes a ton of sense for most investors.
IAN: If it’s good enough for Warren Buffett, it’s good enough for me! Who should be using this strategy?
ANDY: Quite honestly, every investor. We all buy stocks. So why not buy them at the price we want to own them while collecting an income in the interim? It gives you the opportunity to create a steady and reliable income stream. Also, if you wish to lower the cost basis of a stock you want to own, then selling puts is an ideal strategy. IF shares fall below a certain level – known as the “strike price,” you’ll have an opportunity to buy shares at a far lower price.
IAN: Is this an ideal strategy for ANY stock? Or are there specific stocks that you prefer to trade? How about a couple names?
ANDY: Okay, this is where it gets a little more complicated. I only sell puts on stocks that I am willing to own for the long-term. Plus, I only sell stocks on low-beta stocks.
With very few exceptions, I only sell puts on blue-chip stocks. For example, I am comfortable selling puts on Dow stocks and most S&P 500 stocks. I also sell puts on a few Nasdaq 100 stocks as well. As for names, General Electric (NYSE: GE), Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC) and Wells Fargo (NYSE: WFC) are my favorites.
IAN: Using this strategy, what type of returns could someone expect to earn in a year?
ANDY: I am pretty realistic in my expectations. When I started trading this strategy, I was looking to double or triple the dividend of a stock using this strategy.
That target was quickly exceeded. Right now, my goal is to make 12% – 18% on each underlying stock. For the most part, I have been able to achieve those goals.
IAN: What’s the biggest downside risk to this strategy?
ANDY: The biggest downside risk to selling puts or covered calls is that the stock goes down considerably. But remember, we are selling puts with a 30-60-day time frame. Moreover, we only sell puts on highly-liquid blue-chip stocks so the probability of one of our stocks going to $0 is very tiny.
Again, we are collecting income over a 30-60-day time frame so a stock would have to plummet during that time frame to receive any substantial loss. Most investors already own these types of stocks in their portfolio and don’t sell premium. By selling options we are naturally hedging our position through the collection of continuous premium or income.
IAN: What makes right now an ideal time to be selling puts?
ANDY: There is absolutely nothing that makes this an ideal time to sell puts. I say this because it should ALWAYS be a part of your overall portfolio strategy, whether you want to collect consistent income or to simply buy a stock at a lower price. Selling puts is a strategy that can be used in all types of market environments, it just depends on what you seek as an individual investor.
IAN: Andy – Thanks for your time today!
If you are NOT using Selling Puts, you MUST get the details right here.
Andy’s presentation will show you exactly how to get started. Plus, he’ll share LIVE TRADES and real-time examples.
Registration is now open for Andy’s upcoming webinar.
Just click here to RSVP right now. It’s 100% free to attend.