The Strategy That Made $215 in Just 35 Days By Dr. David Eifrig, editor, Retirement Trader
I don't like to make predictions about what will happen in stocks... I don't claim to know whether we'll see an up market or a down market by the end of the year. But I am fairly certain we aren't done with higher volatility in 2024. And more volatility means investors will be willing to pay higher prices for portfolio protection... like the options we sell in my Retirement Trader newsletter. I consider selling options to be the best income-collecting strategy there is. It can even keep your portfolio safe from market drops – if you know what you're doing. But this strategy is incredibly misunderstood. So today, I'm pulling back the curtain and showing you how we're able to earn 20% annualized gains year after year. We're going to look at a trade we closed in Retirement Trader last year. Hopefully, this will show how it's possible to collect safe, steady income... all while profiting from market volatility.
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Back in May 2023, we wrote about a company we love: Booz Allen Hamilton (BAH). If you've never heard of Booz Allen, to put it plainly, it does the work the government doesn't know how to do. Booz Allen hires whiz kids from top schools as analysts who have expertise in technology, cybersecurity, analytics, engineering, and more. Then it contracts those employees to complete projects that are too complicated or too expensive for the government to run itself. Here are just a few of the contracts that Booz Allen has been awarded in recent years... In May 2020, the U.S. Department of Defense agreed to spend $800 million over the next five years on Booz Allen's artificial-intelligence services for the Joint Artificial Intelligence Center. In May 2022, the company won the NASA Cybersecurity and Privacy Enterprise Solutions and Services contract worth up to $622.5 million. In September 2022, the U.S. Department of Veterans Affairs extended Booz Allen's contract as program manager to implement electronic health records. The task order was worth $860 million. And the company was first paid $750 million in 2017 for the same project.
Booz Allen had a backlog of orders worth $30 billion. It's a company we would have loved to own. And for that reason, we decided to sell options on it. Here's what we did... We sold the June 2023 $90 puts for about $2.15 with the stock trading at $91.90. That may sound like a bunch of gibberish if you're not familiar with options. But please stay with me... Booz Allen was a terrific buy. We could have bought the stock and sat on it for many years. But in Retirement Trader, our goal is to collect income on world-class businesses... stocks like Booz Allen. And we do it over and over again. By selling June $90 puts, we agreed to buy shares of Booz Allen if it fell below $90 a share on June 16 (option-expiration day). Of course, if Booz Allen was trading below $90 a share on June 16, we'd have been ecstatic to buy shares for just $90. Again, the stock was trading for $91.90 at the time of our trade, and we'd have had no problem buying at that price. Because we agreed to this deal, we were paid a $2.15 premium. And because one option contract deals with 100 shares of stock, this meant we received $215 for every put we sold. Here's the thing... If Booz Allen closed above $90 by June 16, we wouldn't have had to buy shares. We instead would have just walked away with the $215 and been done with the trade. And that's exactly what happened... Booz Allen was trading for more than $90 a share at June expiration, so we didn't have to buy the stock. We just kept our $215 and then looked for the next moneymaking opportunity. In total, we earned 3.2% from this trade (based on the capital to buy 100 shares of Booz Allen) in just 35 days. If we could make this trade every 35 days, we'd earn 33.6% for the year. Options are often used to gamble. But we're not speculating and taking wild risks. Instead, our trade boils down to this... We're paid a few hundred dollars because we agree to buy shares of a world-class company sometime in the future. If the stock falls enough by our agreed-upon date, we'll buy the stock. Considering the cash we collected at the beginning of the trade, we're actually buying this blue-chip stock at a discount. (We also have ways to make sure we never buy the stock at all.) If the stock rises or stays flat, we don't buy the underlying stock. In this scenario, we just walk away with the few hundred dollars in premium and that's it. It's similar to selling insurance. If you're right that a stock won't fall by a given date, you can profit when markets are fearful. It's simple. And by now, I hope you can see why I consider selling options to be the best income-collecting strategy there is... especially in times of volatility. Here's to our health, wealth, and a great retirement, Dr. David Eifrig
Editor's note: Doc says this market environment is one of the best he has ever seen for this strategy. The bigger the swings in stocks, the better it pays off... positioning you to profit from fear in the market, without taking big risks yourself. That's why Doc is sharing a free recommendation to use by Monday, September 9. It's a chance to try this little-understood strategy (which has racked up a 94% success rate over the past 15 years) for yourself... Get the full details here. Further Reading "Big corporations still go to Goldman and JPMorgan Chase and pay millions to have someone else put these strategies to work," Doc writes. The finance pros know this. But while most everyday investors have never heard of the best options strategies, they're easy to learn... Read more here. Uncertain times can be frightening. But that's when experienced investors have learned to make the biggest gains. For instance, when everyone else is fearful, there's no better time to sell "insurance" – and options can allow you to do just that... Learn more here. |
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