We pull back the curtain on one of the most misunderstood market strategies in investing … and how it can produce 20%+ returns while decreasing your risk
In today’s Digest, we’re doing something special.
Last Thursday, John Jagerson and Wade Hansen, editors of Strategic Trader, held a special event. It detailed a little-known market strategy that’s capable of dramatically altering your investing results, even your retirement.
You see, this off-the-radar investment technique regularly generates a 20% annualized return … with greater safety than just buying a stock outright … and it takes just a matter of minutes to set up these trades.
The feedback we’ve gotten from those attending last Thursday’s event has been very appreciative of John and Wade for revealing this strategy. So, some of our top executives at InvestorPlace decided to do something we hadn’t planned — discuss it here in the Digest. After all, our number-one goal is to make you a more successful, wiser investor. And this strategy does exactly that.
So, today, I have the honor of providing you the high-level takeaway on one of the best income strategies in investing. One that has provided John and Wade’s subscribers with an incredible 78 of 78 profitable, closed trades.
At first blush, this technique might appear unusual … maybe even complicated. But it’s not unusual — many of the world’s most successful investors use it. And as for “complicated” if you’re comfortable with 6th grade math, you’re well-qualified.
The thing about this approach is it’s generally misunderstood. Though most people have never heard of it, the ones that have tend to have false beliefs about its riskiness. But the reality is this technique can actually reduce market risk — while helping you earn 20% annualized yields on some of the world’s strongest investments.
I know that claim might raise eyebrows — it should. Healthy skepticism is important when evaluating any market strategy. I felt that same skepticism years ago when I was introduced to this strategy. My kneejerk reaction was “absolutely not.”
But an investor I respected gave me a great piece of advice — treat it like a journalist. Just be willing to investigate and make up your own mind … try to poke holes in it, even. I eventually agreed, and years later, I’m so glad I made that decision.
So, in this Digest, I’m thrilled to be able to introduce this strategy to you. With that introduction behind us, let’s get into this off-the-radar way of generating safe 20%+ annualized yields.
***”The house” always wins … and how you can win by playing the role of the house
The stock market is full of gamblers … get-rich-quick dreamers who care little about the traditional pillars of safe investing — dividends, stable cash flows, and buying elite businesses at great prices. Instead, these gamblers want huge returns overnight.
They often approach the markets with a casino mentality. They’re not really investing, they’re betting — sometimes thousands (even millions) of dollars on hopes of “hitting it big.”
So, what’s one of their favorite ways of swinging for the fences?
Now, stock options are horribly misunderstood financial vehicles. The popular press, and perhaps even your own broker, may describe options as financial weapons of mass destruction. A foolish idea that’s certain to end in financial ruin. But that’s a woefully shortsighted generalization.
Think about your car. Used by a responsible adult, it’s an amazing tool that provides you convenience, comfort, and mobility. Of course, that same vehicle, when in the hands of a naïve teenager, could be a weapon.
It’s similar with options. The asset itself isn’t necessarily a problem. It’s the misuse of this powerful tool.
But the truth is that when you understand how to trade options wisely and effectively, they can be an invaluable addition to your market approach, increasing returns and reducing risk.
You see, the way most gamblers use stock options, it increases their risk. Often, they’re putting their entire capital allocation on the line. So, if their bet goes bad — poof — that money is gone. But John and Wade’s technique uses stock options to decrease the risk to their capital.
By collecting the money others gamble away.
Basically, their strategy teaches you how to play the role of the house — while others are gambling, you’re the casino.
***The fundamentals of selling options for income
In simplest form, a stock option is simply an agreement between two investors. This agreement details the conditions in which these two investors might agree to a buy and sell a stock.
For instance, let’s say that Jim holds a big chunk of Microsoft in his portfolio. The company announces earnings soon, and Jim is worried about a miss. He fears Microsoft might sell off on the news. Perhaps he’s in some financial situation where he can’t afford a major drop in the value of his assets.
So, he finds Mary and offers her a deal … If Microsoft’s stock price falls below a set price (called a “strike price”) at any time within a specific time period, then Jim can sell his Microsoft shares to Mary for an agreed-upon price. Mary will buy those Microsoft shares for that price — even if Microsoft’s market price at the time is lower.
Basically, Jim is betting on Microsoft’s price. As part of this, he’s just gotten himself an insurance policy. Now, that’s obviously a good deal for Jim. But what does Mary get out of this?
Well, in exchange for making this deal (in which she plays “the house”), Mary receives cash from Jim, paid up-front, which she gets to keep — regardless of whether Microsoft’s stock drops or not.
That means if Microsoft comes out with positive earnings and the stock soars, it will never dip below the strike price. And that means Mary walks away from this deal with nothing but a new wad of cash in her pocket. Jim continues to own all his original Microsoft shares.
The option just described is a “put” option. And with John and Wade’s strategy, we play the role of Mary. We sell puts to other investors. This puts us on the hook to buy shares of stock under certain circumstances. In exchange, we are paid cash, up-front, as part of this deal.
Now, if you’re thinking “Hmmm … This could mean I might have to buy a stock at some point” then you’re right. And that leads us to a critical detail …
***John and Wade only make these deals on world-class companies, the type of market dominating stocks we’d want to own anyway
The premiums an investor might collect by selling puts on risky, highly-volatile stocks are usually much higher than the premiums on safe, steady blue-chip stocks, like Microsoft or Coca-Cola.
And this is where many investors are led astray. John and Wade avoid this by making a critical distinction …
They only sell puts on stocks that they’d be happy to own as pillars of a long-term buy-and-hold portfolio. For example, as I write, they have open trades on Disney, Microsoft, and Home Depot, among others.
This type of dominant company usually holds the No. 1 position in their markets, rakes in huge amounts of cash … and often pays healthy, growing dividends. They rarely experience major declines … but on the occasions they do, it’s generally a temporary stumble — often great opportunities for long-term investors to step in and load up on bargain prices.
Think of it like this …
If you believe Microsoft is going to be a great long-term investment, you could buy it right now at today’s market price … OR … you could make a deal …
With this deal, you’ll buy Microsoft only if it sells off, say, 3% from its market price today. If it does, you’ll buy it at that lower price. In exchange for agreeing to buy at that cheaper price, you’ll earn cash, today. And you keep this cash regardless of what happens.
So, if Microsoft shares fall 3%, you buy this elite stock at a discount to today’s market price (with the premium in your pocket). And if Microsoft doesn’t sell off? You just walk away with a wad of money.
That’s what makes this strategy so safe and profitable. It provides smart investors lots of ways to win. That’s different than so many other trading strategies that have only one way to win … and lots of ways to lose.
***Speaking of winning, so far, John and Wade’s Strategic Trader put track record is an astonishing 78 of 78 profitable, closed trades … for an average annualized return of 35.7%
Yes, you read that correctly. Every one of John and Wade’s closed put trades have posted a gain. Frankly, that’s astonishing, and deserves a big congratulations.
So, let’s look at an example of how these winning trades work.
Last week, John and Wade recommended a trade on entertainment powerhouse Disney. In their analysis, they point toward sources of Disney’s strength today, as well as why they anticipate the stock will continue to do well. They cited the massive success of The Avengers: Endgame movie, which has raked in more than $2.5 billion worldwide, the company’s recent move to take control of subscription video service Hulu, and the upcoming opening of the Star Wars: Galaxy’s Edge attraction in the Disneyland theme park.
With all this in mind, they agreed to a put trade on Disney with a strike price of $132. So, what are specifics?
Here’s John and Wade for that:
With this put sell, we’re targeting an “instant” income payment of 0.90% of your purchase obligation. If the shares are above our $132 strike price at expiration, the puts will expire worthless for full profits.
That’s a return of 0.90% in just over 3 weeks, or 14.5% annualized.
While this trade is targeting a 14.5% annualized return, others will be far higher. Remember, John and Wade’s current average annualized return on closed put trades is 35.7%. Overall, they target 20% annualized returns.
We’ll be watching in a few weeks to see if they go 79 for 79.
***If you’re interested in this strategy, but are wondering how easy it would be for you to learn, consider this …
John and Wade recently heard from a Strategic Trader subscriber named Lucky. He’s a small business owner from Minnesota. He had never done this before, and yet he’s made $8,534 in extra income already.
Then there’s the gentleman who took a chance on the strategy and reported it was no problem to learn and “found it easy to get started.” He said that he has made “$532 by selling premium; $3,900 by stock appreciation.”
If you’re interested but still have doubts, I totally understand. But if I can switch roles with my own mentor from years ago …
Become a journalist. Take the time to investigate. Learn more. Try to poke holes.
What you lose by learning more about this strategy is nothing … but what you could miss through inaction is a powerful way to consistently earn 20%+ annualized yields with higher relative safety. After all, John and Wade’s track record speaks for itself.
I’ll end today’s introduction to puts here. But I encourage you to re-read this Digest if it will help everything sink in. Once you understand how to sell puts — and how profitable this strategy is — I suspect it’ll hook you the same way it hooked me all those years ago.
If you’re already curious to learn more, just click here for more John and Wade.
Have a good evening,