The No. 1 Rule for Generating Above-Average Income in Any Market

It's one of the easiest and safest ways to generate 20%-plus returns on a regular basis.

Once you've mastered the technique, I wouldn't be surprised if you stopped trading stocks or only buying and holding investments altogether.

That's how powerful this strategy is: It can drastically improve the way you make money in the markets. That goes for conservative income investors and aggressive traders alike.

The technique involves selling options. If you've never tried your hand at options before, don't worry -- the kind of options strategy I'm talking about is perhaps the safest, easiest way to execute a trade for income that you'll ever come across.

Specifically, I'm referring to selling call options.

A call option gives the buyer the right -- but not the obligation -- to buy a stock from the call seller if it's trading above a specified price before a specified date.

When you sell a call option, you accept the potential obligation to sell a particular stock at a specified price at a set time in the future. When you sell a call, you generate what I call "Instant Income," also known as a premium, upfront.

I only recommend selling covered calls. A covered call strategy requires you to sell call options on a stock you just bought or already own.

Since you own the shares, you participate in any upside, and the income can offset some of the downside risk. So, you want to make sure you're more than comfortable holding the stock for the long term.

This brings me to my No. 1 rule: Only sell covered calls on stocks you want to own.

Getting Started With Covered Calls

When trading a covered call, it is important to start with quality companies. These are companies that have a good reputation and are not likely to suffer an unexpected drop on bad news.

Covered call writing is an excellent way to generate high income and minimize risk. Selling covered calls is a conservative strategy, so to maximize income, we need to write calls on stocks that offer large premiums. This will often be large-cap stocks that are in the news for one reason or another.

Large-cap companies with decades of operating history tend to pass the "good reputation" test. I like to start my search for quality with large-cap stocks that are included in a major market index. However, since volatility -- and, therefore, income from options premiums -- is usually low on large caps, it can be difficult to generate double-digit annual gains only writing calls on blue-chip stocks.

Occasionally, though, large-cap stocks will experience higher-than-average volatility. This can occur when investors overreact to a company missing earnings estimates or when a stock split is announced. Selling in the broader market can also boost volatility and options premiums. I try to take advantage of those opportunities when they occur, but you can't expect to find trades like that every week.

Small caps can also lend themselves to this conservative income strategy if you do your research and only select stocks that offer value. In my opinion, the best trades are with small caps that remain undervalued for some time, allowing us to sell multiple calls on the same shares.

Selling covered calls can be a profitable strategy in any market environment. When interest rates are low (like they are now), covered calls can provide the income that fixed-income investments (like bonds) just can't deliver. And when interest rates rise, calls actually become more valuable. This means covered calls can provide income for life... as long as you find the right stocks to trade.

Earn Double-Digit Returns in a Matter of Weeks...

To prove just how lucrative this strategy is, I've included a table of some of the trades my subscribers and I have made in my premium covered call newsletter, Maximum Income.

options-trading-returns

Keep in mind, this is just a sample, but more often than not, we've come out ahead on our trades.

Also remember, in order to achieve these results, we had to buy (or already own) 100 shares of the stocks mentioned above. But that's another great thing about covered calls -- this strategy is fully scalable, so if you want to earn more, all you have to do is buy more shares and sell more call option contracts on them. You can also repeat a successful trade in the future to earn more income. Or, if a trade doesn't quite pan out, you can continue selling calls to lower your cost basis, thus increasing your chances of coming out ahead.

Bottom line: Selling options is the closest thing to a win-win situation that you'll get in the financial markets. The secret is only selling options on stocks you want to own. If you follow this one rule, you're ahead of 90% of options traders.

There's a lot more I can say about covered calls, but I simply don't have the space for it in today's essay. But if you'd like to learn more, I suggest you check out my latest presentation.

If you decide to give Maximum Income a try, I'll send you a full slate of reports to help get you started, including:

-- "Options 101: The 15-Minute Starters Guide to Options Investing"
-- "Using Options Payments to Earn Thousands in Monthly Income"
-- "The Complete Options Brokerage Guide"
-- And more

Click here to get started.

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