No, this is not another stale look at the stock market. It is a twist on what you already know. Actually, it’s also more than that. We will share with you a serious and realistic way for you to make a lot of extra monthly cash. But as Socrates said: “Much learning begins with unlearning.” We think you’ll have fun discovering this new way to get assets to produce income so you can quit your job.
We would like to introduce you to Writing Covered Calls. This is one powerful stock market for people who need extra income, but they don’t need a second job. Wise people realize a need for an extra independent source of income. The problem is this: If we jump into the actual deal, it may be exciting for some, but others get left behind. And we don’t want anyone left behind. So, to make our introduction more exciting and more effective, we need to cover a few basics.
Did you know 23,000,000 Americans trade in stock options? Most lose money. Why is that? And why are stock options so popular? Up front we must tell you that this writing is not about buying options and then being at the mercy on the market. Soon, you’ll see how our method constitutes selling these risky options to all of those crazy people who like the risk. They take the risk, we take their money. See, right there, you were introduced to a new strategy with serious implications.
So, what is a stock option? There are two kinds of stock options, calls and puts. You buy a call when you hope a stock will go up. You buy a put when you think or hope a stock will go down. In this short piece we will only deal with call options. Okay, here is the gist of the trade: One would buy an option to lock in the purchase price of a stock. Our purchase of the option would give us the “right,” but not the “obligation” to buy a stock.
An example here would be good. You like a stock. You think it has a lot of upside potential. It’s going for $4.60. You think it could go to $6 or $7. You check option prices and the next month out $5 call options are going for 60¢ X 65¢. This is the bid and the ask. Basically you buy at the ask and sell at the bid. Options are in 100 share increments, called a contract. Again, you are purchasing the right to buy the stock, anytime on or before the expiration date, at $5, in this case. Now, what do you want to happen? You want the stock to go up, right? Let’s say you purchased 10 contracts. That would be 1,000 shares. Think of that, for $650 (1,000 times 65¢ = $650), you have purchased the right to buy 1,000 shares of this stock at $5.
That is a form of leverage. You control 1,000 shares of this stock. So far, so good, right? It’s very exciting. If the stock goes up to $8, and you have the right to buy the stock at $5, even with no time left in the option premium, the option would be worth $3. 1,000 times $3 is $3,000. Your $650 became $3,000 in a week or two, or even hours. Don’t get too excited—we’ll deal with reality in a moment. But we do want you excited about stock options—selling them, that is. The operating statement that drives all of the people who trade in options is this: “When there is a small movement in the stock, there is a magnified movement in the option.” Usually. Look at these numbers. If you bought this stock at $4.60 and sold it for $8, you would make $3,400 when you sell. That’s nice. With the option you would only make $650 up to $3,000, or $2,350. One would make more with the stock, but what’s the point? The point is you have $650 tied up compared to $4,600. This is a beautiful side of leverage.
So, what’s the problem? Well, life is real, life is earnest. The stock is going to go up, down or sideways. The option will respond, and other market forces will come into play. The main market force is time, as in time to expiration. It goes away. We want to put market forces to work for us, not against us. The way to do this is to sell it. This may be heavy-duty for some, and it’s not that important to understand time and implied volatility, but it is good to understand that we can put these forces to work for us, and pocket the cash. More, coming up soon.
First, though, let’s look at the problems with straight options and internal to this you will see why most people lose at this type of trading. There are the three things that will happen, mentioned above. If the stock goes down, you lose all or some of your $650. If the stock stays about the same, same thing; you lose. But what if the stock goes up? It should be good, right? Hardly. The stock might go up to $4.90 and if time elapses you lose. The stock has to move quickly and a lot, or you’re going to lose. There are three things that can happen, and you lose money in two-and-one-half out of three of them. You have a one-half of one chance in three of making money. The odds are stacked against you. Don’t get too frustrated. We set out in this article to change all of this, and put these market forces to work for you. Read on and you’ll soon see your retirement.
A Few Important Questions:
It is important to properly frame this process. A few questions will help:
Do you have assets making you monthly income so you can quit your job?
What is the quality of your income? Meaning, what level of skills and experiences do you need, and how much time must you work to make your money?
If money were not an issue, meaning you have an outside source of income, what would your life be like?
Who is the boss of your financial future?
What does your “cash flow” team look like? What experiences, knowledge and wisdom do they have in the real market that will help qualify you to be wealthy?
WRITING COVERED CALLS
Let’s say you have a stock, purchased new for Writing Covered Calls or one you have owned, and it’s going for this same $4.60. You spend $4,600 to buy this stock. NOTE: You only have to put up half of the money ($2,300) to buy this stock on margin. That’s another topic. Now, you call your broker or check with your online account and look at the $5 calls. Yes, you like the stock, but you have determined right now that you don’t need the risk, you need monthly income. The $5 calls look good, but now that you own the stock, you can sell for cash (it will be in your account in one day) these $5 calls. The bid in 60¢. With your 1,000 shares, you can sell ten contracts. That would be 1,000 times 60¢, or $600. Let’s pause.
The market is willing to give you $600 right now, for the right to buy your stock at $5. If there is a bid and ask, you will always be able to sell at the bid. Think about this. You bought this stock for $4.60, say yesterday. Now you sell this option. You take on the obligation to sell this stock at $5. Buying an option gives you the right, not the obligation to buy the stock. Selling the option, getting paid and taking in the cash, creates an obligation to sell the stock. You will sell this stock if it goes to and above $5.
What about other movements? The stock stays the same. You make $600. It’s yours to keep. What if the stock goes down? You make the $600 and you still own the stock. We have protective strategies to guard against losses. You have the stock, and it's ready to go to work for you again. When do you sell the stock, and what happens? If the stock goes above the $5 strike price, you keep the $600 AND you make an extra 40¢, or $400. That’s the stock price of $4.60 up to $5. Your net for one month is $1,000.
WHAT IS MISSING?
That $1,000 brings up the point we are fond of making. We can teach options all day. We can expand this process to include Writing Covered Calls. But as we think of our students/members, we ask: What is the missing link? What is the one thing people need? We believe the answer is “the deal.”
Everything we’ve mentioned here is real. We only do real deals. This example used here was used in a real TDT. These profits are real, and you are really just a short time to all of this extra income.
That is why our TDT is so well received. Someone is here to help you. Someone with experience you can tap into. And what level of passion do you want them to have? We are that someone who loves this process and also relishes teaching these methods to others—with the deals included.
“WHEN THE STUDENT IS READY THE TEACHER APPEARS.”