This Strategy Led to a 17.1% Yield in 37 Days
The week after options expire is one of my favorite times of each month. That’s because, as usual, it means it’s time for readers of my premium advisory, Income Trader, and me to review our trades.
And so far, we’ve seen outstanding results.
In January, six put positions expired worthless. For those of you who are unfamiliar with options, that’s a good thing for us.
You see, every time I make a trade, I get “Instant Income,” or money upfront for selling put options. And when the options I sell expire worthless, that income becomes pure profit.
We have now closed 41 put option trades since last February, and 39 (95%) have expired worthless. And with the help of another income-generating strategy, selling covered calls, the other two trades also delivered a profit (you can read more about covered calls here).
You can see the positions we closed in January below:
Every trade we closed last month made a profit. Even my “worst” trade — F5 Networks (NASDAQ: FFIV) — made a 3.9% return in just a 65-day trading period. That may not sound like a lot at first, but if you were to get a 3.9% return every 65 days for the entire year, that would be the equivalent of a 21.7% annual return.
January’s results are in line with the performance we’ve seen in the past. Since last February, we’ve consistently generated steady income.
And I don’t see anything in the current market environment that threatens this strategy.
Here’s the best part: So far, my trades have generated income averaging $720 every 50 days for every $10,650 invested. That comes out to more than $5,000 in income per year, or a 49% annual return.
Of course, I don’t expect I’ll have a 100% win rate forever, but I do believe selling options is one of the best ways to make money in the financial markets, in part because it can offer investors a wide margin of safety.
The Myriad Genetics (NASDAQ: MYGN) trade I closed in January is a perfect example of that.
Myriad provides molecular diagnostic testing services. These services can help health care providers assess a person’s risk of developing disease, guide treatment decisions and offer information that allows doctors to understand the risk of disease progression and recurrence.
With a $354 million cash hoard (making up 15% of its market value) and earnings up 56% compared to this time last year, MYGN’s finances are in good shape. In addition, the company is expected to grow earnings per share by an average of over 14% a year for the next five years.
Back in December, I recommended selling a put on MYGN with a strike price at $19 — more than 26% below the market price at the time. That means the stock would need to fall 26% for the option to be exercised — a huge margin of safety. The stock stayed well above the strike price, and ended up closing above $19 on Jan. 20.
If the puts had been exercised, we would have been obligated to buy 100 shares of MYGN at the bargain price of just $19 per share (which is a big discount — shares were trading at $24 when we entered the trade).
But because the option expired worthless, readers who followed this trade earned $65 per contract for a 17.1% return on their investment. Remember, you can sell as many contracts as you want — and scale up the amount of Instant Income you collect.
Not only did we get a 17.1% return, we got it in just 37 days…
Bottom line: My objective is not to speculate on short-term stock market moves. Rather than looking for stocks that could deliver short-term gains, my recommendations will always be on stocks I expect to deliver the best income opportunities, and these stocks will often offer multiple opportunities to profit.
In other words, each of my trades in Income Trader provide investors with the chance to either profit from buying a stock at a bargain price, or profit by generating Instant Income from selling a put option. In investing, it’s as close to a win-win strategy as it gets.
And considering that I’ve closed 41 put option trades since last February, and all 41 have made a profit, I’d say the strategy is doing its job.
Note: If you want to join me and make Instant Income on stocks you’d want to own anyway, and to learn exactly when another trade like MYGN should be made, click here.