You get paid when your trades are winners, states Mike Larson, editor of Safe Money Report
No surprise there.
But what if you could get paid on your “losers”, too? It’s not impossible.
Let’s start with the premise behind our strategy: Investors need better income options. Bank CDs won’t cut it. Savings accounts won’t cut it. Treasuries won’t cut it. Even junk bonds won’t cut it. Not with inflation at 8.5% and yields at...well...nowhere near 8.5%.
That’s where selling options (rather than buying them) comes in. When you buy options, studies and research shows you can expect to lose around 80% of your trades. The passage of time and the cost of the options work against you, and many purchased options simply expire worthlessly.
But selling options is a much higher-percentage strategy. You turn those odds around–putting them in your favor.
Plus, our backtesting and real-world experience shows that with the proper techniques and tools at your disposal, you can push your “win” rate on trades even higher than 80%. Potentially as high as 97%-98%.
Even with that kind of win rate, though, you’ll have an occasional “loser.” If you sell put options for income, and the value of the underlying stock you target declines below the strike price on your options, you’ll have to buy its shares. This is called getting exercised.
But even on a so-called losing trade, all is not “lost.” You still have ownership of something with value. Provided the underlying stock (or ETF) you targeted is only experiencing a temporary or gradual decline, you can turn around and get “paid” by it.
Specifically, you can sell covered calls against your shares while you wait for them to recover. And you can do that over and over, each month, reaping round after round of additional income.
Result? Even “losers” can become “winners.”
Yes, there are ways this can go south. If the underlying stock or ETF just keeps dropping, you’ll lose money on the shares and the covered call income won’t be enough to offset it.
You also need to have enough capital or buying power in reserve to execute the strategy. So, no, this technique isn’t foolproof.
But our experience has shown it isn’t just your winners that can pay off. It’s your losers, too.
