Get Rich - Stay Rich - Investing for Monthly Income

How to Develop Multiple Streams of Income

To achieve financial independence, you must create a level of income to cover the lifestyle you desire. There are many ways to accomplish an income to fund your life experiences. Many work during their life to save money for this purpose. Some are entrepreneurs that start businesses usually with hired managers to carry the workload to create their income. Others invest in passive investments such as rental housing. Here is a look at investing strategies to increase your earnings and create multiple streams of income.

In author Thomas C. Corley’s five-year study of self-made millionaires he found that many of them develop multiple streams of income: 65% had three streams, 45% had four streams, and 29% had five or more streams.

“Three streams of income seems to be the magic number for the self-made millionaires in my Rich Habits study, but the more income streams you can create in life, the more secure will your financial house be,” he writes.

I apply Corley’s thinking to my investment portfolio by identifying several streams of income. One passive income stream is collecting growing dividends from world class stocks. These stocks have a strong financial position, competitive market position, known brand and growing dividend history. I also invest in closed-end funds that pay monthly dividends. This create a diversification opportunity as I can add fixed income, preferred stocks and other types of investments. Lastly and probably more important, I sell options for monthly premium income. This includes selling cash-secured puts and covered calls. I love this strategy and have created a consistent, growing stream of income.

Join me in creating multiple streams of incomes to live the life you desire.

Are You a Penta Millionaire Yet?

Have you heard about “Penta Millionaires: the New Rising Class” it discusses families with net worth over $5 million as a fast growing class in America. While this is correct about the changing of wealth, it still separates the wealthy from the other classes. While we all strive to attain our definition of success, the media continues to focus on the upper class. Let me share a secret with you, you can still have a productive and fun-loving life without being in the top income bracket. This is why we write a monthly income newsletter – to help those wanting to better their life and create a sustainable monthly income.

Here are some excerpts from the articles:

It is fair to say that at no time in history have so many Americans become so rich—or amassed their wealth so quickly. When John D. Rockefeller took title as the country’s first billionaire, in 1916, it was as rare an event as sighting a white whale, and seven decades later, the number of billionaires had still only reached 44. Since then, however, the ranks of the megarich have surged ahead with a caffeinated velocity.

At every level of the wealth pyramid, according to Penta’s research partner Boston Consulting Group, the ranks of millionaire and multimillionaire households have expanded. Last year, for example, there were 492 U.S. billionaires, meaning that 100 new billionaires were created in the past five years alone. But the most interesting trend is a little further down the pyramid: The number of households with more than $5 million in investible assets just crossed the one million mark.

Flash forward to recent times. The rank-and-file rich have grown by just 5% a year recently, but this steady if modest climb over seven years has actually delivered better results. We now have a million-strong army of very rich emerging from the ho-hum, low-inflation economic growth that has been coupled with robust capital markets. Many have, in this calm environment, quietly sold off their private business or cashed in their stock-option windfalls.

At Get Rich Investments, we focus on creating stream of income to improve life and become financially independent. Once you learn how to create monthly income, you now control your own destiny. We have several investing strategies focused on low risk trade such as covered calls and buying monthly dividend CEFs and collecting dividends from world-class stocks. This is the way to increase your wealth on a monthly basis.

One strategy is the Covered Call Dividend Strategy where we sell sell covered calls for income while collecting dividends. This creates three income streams from a single investing position. This positions the investor in a low risk position as you can continue to create option income each month by selling calls on the same stock. If the market goes up – you make income. Same for when a stock pulls back – keep selling options for income. It is like collecting rent on a rental property each month – without the hassles of a tenant.

I can’t promise you will be a Penta Millionaire, but you will definitely create more income and move toward becoming financially independent.

Learn more about getting started on your wealth journey today.

How to Sell Put Options for Income

Let’s walk through an example of how to sell a put. After careful selection of the right stock, you decide you would like to create a monthly income stream by selling puts each month on this stock. Let’s say the stock is currently trading at $70 in the market. After reviewing the option chain, you decide to sell the 67.5 put option on this stock that expires in one month. The 67.5 strike price is out of the money and will obligate you to buy the stock at $67.50 only if the put buyer decides to exercise the option on or before the expiration date. The put buyer will only exercise the option if they make money or if the stock price is below $67.50.

As the put seller (writer), you get to collect the cash premium for the option. In this case, let’s assume it is $200 per option contract or 100 shares of stock. The investor now has a risk of $67.50 – $200 = $65.50 per option contract sold. If this amount of $6550 per contract is in the investors brokerage account, this is a cash-secured put. The potential return is $200 which the put seller will keep regardless of the trade outcome.

The investors return is calculated as $200/$6550 or 3.05%. This is a nice return on a one month put option. On an annual basis, this is a return of 36.6%! This is why I sell put options for monthly income.

Here are the details of the trade:

1 Option = 100 Shares of Stock: In this example, we sold 1 put option. In other words, we sold someone the right, but not the obligation, to sell 100 shares of stock to us for $67.50 on or before the option’s one-month expiration date (usually the 3rd Friday of the month).

$ 2 = Our Options Premium: In exchange for giving someone (the put buyer) the right to sell us 100 shares of stock at $67.50, we get paid in cold-hard cash! In options lingo, we get paid in the form of a premium. In this example, our premium is $ 2 per share. Because each options contract equals 100 shares of stock, here our premium is $ 200. This $ 200 is deposited in our account at the time of the transactions. It is ours to keep no matter what transpires before expiration (the end of the contract).

There are 2 potential trade outcomes:

  1. The stock prices stays above the 67.5 option strike price so the put option expires worthless. Put yourself in the position of the options holder (the person that buys the put option from us). The put holder purchased the right, but not the obligation, to sell 100 shares of stock at $67.50 per share. Assume this put option expires in one month. If, at the end of that one-month expiration time period, the stock is trading at a price above $67.50, why would the put holder exercise his right to sell the stock at $67.50 when he can sell at a price above $67.50? They would not exercise the put option! The investor keeps the $200 premium and has a 3.05% return in one month.
  2. The stock declines in price and is below the 67.5 option strike price. The option will be exercised and the shares of stock will be sold to us at the strike price ($ 72.50 per share). Again, put yourself in the position of the put holder for a moment. If, at the time the put option is set to expire, the stock is trading at $65, and the put holder has the right to sell shares of stock at $67.50, why wouldn’t the put holder exercise his right to sell the stock at $67.50 per share? They would. So in this scenario, the cash we previously deposited into our brokerage account ($6750) is used to purchase the underlying shares that were “put” or sold to us. Our break-even point, also referred to as our “cost basis,” is now $65.50 ($67.50 per share we paid for the stock less the $ 2 per share put premium we received from the original sale of the put option). At this point, we own 100 shares of stock and can sell them or write a covered call trade.

This is a simple example of how to sell (write) a put option for monthly income. Once we do this each month we create a stream of cash flow to help us achieve financial independence.

Last month, we were successful on all put trades and averaged 3.5% return for the month.  Imagine making $3000 or more in income each month!   Start making more income each month by subscribing to the Monthly Income Plan.

How to Create a Better Lifestyle with More Income

Warren Buffet has always discussed the concept of Mr. Market. This is an idea around each trading day Mr. Market offers you the price to purchase a stock in the stock market. As an investor, you must decide if you want to but the stock at this market price. Is the stock overpriced, undervalued or will the market crash in the coming days? As investors, we can’t predict the future direction of stock markets. And if anyone tells you they can, then run away from them. To get around predicting the stock market, I sell puts on stocks to generate monthly income and I usually win regardless of what the market does in the coming weeks.

When we sell a put option, we are selling someone the right, but not the obligation, to sell shares of the underlying stock to us at a price that we select called the strike price on or before a date that we select called the expiration date. In return for undertaking this obligation, we are paid a certain amount of cash called the premium that the market determines.

Should the put buyer decide to exercise that option by selling his shares to us on or before its expiration date, we are obligated to buy those shares at the strike price. To cash-secure this transaction potential, we deposited the appropriate amount of cash into our brokerage accounts to purchase those shares at the strike price minus the cash premium received.

How often does a put get exercised? This is variable but most research indicates about 80% of options expire worthless or do not get exercised. When a put option expires worthless, the investor keeps the cash premium as their return. Put writers or sellers continue to sell put each month to create and capture the cash premiums. This is the monthly income to supplement your lifestyle.

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How to Make $3,500 per Month Passive Income for Life

What could you do with $3,000 per month in passive income for life? How would it change your future? For some, it will be a total life changer to increase your income each month. For others, maybe not, but how would it affect your life if you had access to the plan that produced $3,000 per month for life?

It is clear that most people are not doing the single most effective thing that will make them rich: Investing in the stock market for passive income each month.

At Get Rich Investments, we focus on creating monthly income. We like to invest in securities that can produce 3-5% each month. One method to achieve this level of income is by trading covered calls. This trade allows the investor to sell a call option for premium income. Then, we buy a protective put to protect our downside from owning the stock.

The year 2019 turned out to be a stellar market advancement fueling significantly higher returns than 2018. Last year, Get Rich Investments had a total return of 18% compared to 10% for the S&P 500. This year, we did even better by not only trouncing the SPY but achieving an all-time high of 50% in our portfolio. The average monthly income across our open positions was nearly $200 for each position with 100 stock shares. If you own all positions (100 shares) you would capture $1,663 dollars of income per month. And, if you double up you can capture nearly $3,500 per month.

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Let us look at a couple examples, one of our better income producing stocks was Merck (MRK). Yes, I did say INCOME producing even though MRK has a modest 2.7% dividend yield. How did we turn MRK into a cash machine? Simply, selling monthly covered call throughout 2019. In total, we received $165 dividends for each 100 shares of stock. However, we earned a total of $2,180 in call option premium (13X the dividends). At yearend, our income yield (including both dividends and call premium) was 32%.

Tell me where else you can find a yield this high! We had over 8 stocks in our portfolio with this level of performance in 2019.

To get started, you can join the Monthly Income Plan that offers a list of high yield covered calls and monthly dividend stocks. You can easily make 10X your subscription fees and change your life.

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How to Get a 40% Annual Yield for Monthly Income

As income investors, we are constantly seeking investments to secure income for our portfolios. The majority seek dividend through income stocks. At Get Rich Investments, we suggest a healthy dose of stocks that pay monthly dividends. In such a low yield world, these investments offering monthly dividends can prove to diversify your income opportunities. There is also an opportunity to earn a high call yield to produce a significant amount of monthly income.

What is call yield and how does it differ from a dividend yield. In typical income investing, an investor may purchase a stock that pays an annual dividend such as a 3-5% yield. In comparison, the income investor may enter a trade using a covered call strategy. This trade is based on the investor owning 100 shares of stock for each call option sold. The investor receives a premium (income) for each option sold against their stock. The premium income forms the call yield based on the premium divided by the cost of stock.

Let’s look at an example subscribers to our Monthly Income Newsletter invested in during 2019. The stock was Starbucks Coffee (SBUX) that was purchased in January 2019 at $61.30 per share. The total investment for 100 shares would have cost the investor $6,130; and is the denominator of the call yield. Then, each month January through November expiration a front month call option was sold for income. The total amount of call premium income during this period is $2,350 or $214 per month. To calculate the call yield, you divided the $2,350 in call premium by the total cost ($6,130) for 38.3%!

Now hold the farm, this strategy created a 38% call yield! Where can you achieve this amount of dividend yield in such a low yield market without something like a startup-type risk?

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In comparison, if you were just a stockholder you would have received $144 in dividends for a 2.3% dividend yield. By using the covered call strategy, you achieved a 40.6% yield combining the call yield (38.3%) and the dividend yield (2.3%). You should keep in mind this is over 11 months of a covered call strategy.

As a covered call investor, you can place this type of trade on most stocks in the market. I suggest focusing on blue chip type of stocks. Subscribers are engaged with around 10 of these trades and also trade other covered calls on a monthly basis.

There are additional benefits to using this strategy beyond the high call yield. Recently, SBUX was trading at $86.00 per share that created a capital appreciation of a little over $2,400 for this investment.

The covered call strategy creates some downside protection if the stock price has a temporary pull back based on market trading.

In conclusion, income investors should add the covered call strategy to their portfolio to supplement other income investments. It is prudent to not only create multiple streams of income but also diversify your investing strategies across your total portfolio. If low yield have you down, look to a consistent covered call strategy to create a high call yield. Here’s to the next 40% or better income yield.

Understanding Option Premiums for Income

Option Premiums

The premium is the price paid or received for an option. Options are traded much like stocks, with bid and ask prices shown:

  • Seller generally receives the bid price
  • Buyer generally pays the asked price

 

  • Market maker makes or specialist keeps the spread between the bid and ask prices.

An example: A stock is trading at $40, and the October Call prices are quoted as follows:

BID = $1.70 ASK = $1.80

This means the high bidder will pay $1.70 and the lowest price offered to the buyer is $1.80. Note the $0.10 spread between the two prices. Actually, the only time the seller can be assured of getting the bid price, or the buyer only the asked price, is to enter a trade order as a market order, at which they get the market price at the time the order is executed. Market makers have to execute a market order at market price, up to the number of contracts for which the bid or offer is good, but are not obligated to take limit orders. By using the limit order, the seller might get the $1.75 or $1.80 for writing the call. And the buyer can enter a limit order for less than $1.80 such as $1.70 in an attempt to buy the call at a cheaper price.

Historically, the premium referred to the total amount received for selling the contract, not to the option price. Today the term “premium” simply means the options price on a per share basis. That is, the premium shown is bid at $1.70 that means $1.70 per share; you would expect to receive $170 ($1.70 X 100) for an entire option contract related to 100 shares. The premium can be all intrinsic value, all time value or contain both.

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Get the book on Amazon – Passive Income Monthly Plan: Create 60 Paychecks in 90 DaysLearn to create 60 paychecks per month in passive income. It’s simple – get started with $5 to build unlimited income. One of the truly passive income opportunities for monthly income – month after month!

Join the Monthly Income Newsletter voted the best value for option income trading

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Understanding Option Exercise and Assignment

Exercise and Assignment

When a stock option is exercised, the call holder buys the stock, and the put holder sells the stock. When options are exercised, the OCC decides to which brokerage firm the exercise will be assigned, and the brokerage in turn decides which customer will get the assignment. When we are assigned an exercise and are required to sell our shares, the shares sold are said to have been called out or called away. Assignment occurs, then the shares are called out. Assignment on a short puts means purchasing the stock.

Assignment is completely random, and an exercise can be assigned to and appointed among several different call writers. Once assignment by OCC occurs, settlement between the buying and selling parties is automatic. Shares must be physically delivered once exercise occurs. The covered call writer doesn’t have to do anything; the call writer’s broker handles settlement, delivers the shares and collects the exercise funds. Option exercise or assignment can be partial: one can exercise less than all options held. Conversely, you may be assigned on less than all of your short calls or puts. However, one cannot exercise or be assigned on part of a single option contract. If you buy a call (put), you are not required to buy (sell) the underlying stock: you may sell the option to close or allow it to expire worthless.

Automatic Exercise

The OCC automatically exercises options that are $0.01 or more ITM, unless the option holder has notified their broker not to allow exercise of the option. Note that a stock’s price can tick up or down after the close on expiration Friday, resulting in calls or puts (but not both calls and puts) that were near the money at Friday’s close becoming in the money – and being exercised.

If you are long calls on expiration Friday, you could find yourself purchasing shares unexpectedly, due to a late-day or after market tick up in the stock. Or if instead long the puts, then, you might find yourself selling shares unexpectedly: and if you don’t own the underlying shares, this would either create a short stock position in your account, or your broker would buy you in (purchase the shares on your behalf) in order to cover itself. Be sure your broker knows your intention if you are long options at expiration and have nor closed them. Writers of short calls and puts can similarly find themselves assigned an exercise due to the same mechanism.

Early Exercise

Because stock options are American-style, you can be assigned as exercise any time an option is in the money, although options typically are not exercised early while there is still time value remaining. The reason is that the exercise of an option forfeits its time value; to capture the time value it is necessary to flip (sell) the option. But as expiration draws near, options that are in the money sometimes trade at parity, and this is when early exercise occurs. Options trading below parity practically beg arbitrageurs to exercise them for risk-less profit.

Where Stock Options Go

Option traders say that only 10% of options are exercised, which is generally true but not in all cases. Thus if you write a call, the odds against assignment are roughly 9:1, statistically speaking. But if a call is written ITM, the odds are quite high it will be exercised, despite the overall 9:1 odds. No matter where written originally, if the calls are in the money $0.01 or more at expiration, exercise is a virtual certainty. ATM and OTM options are never exercised, since it is cheaper to buy or sell stock in the open market than to exercise an option.

You have probably heard option seller’s state they are right 90% of the trades. This is due to only 10% or so being assigned. There is more to this story as we continue this journey.

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Get the book on Amazon – Passive Income Monthly Plan: Create 60 Paychecks in 90 DaysLearn to create 60 paychecks per month in passive income. It’s simple – get started with $5 to build unlimited income. One of the truly passive income opportunities for monthly income – month after month!

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Do You Know “Moneyness” in Options Trading

Moneyness: Option Strike Prices

Stock option strike prices fall into the three categories, depending on their relationship to the stock’s price (known as the “money”). This relationship to the “money” is known as moneyness.

  • In the money (ITM)

 

    • At the money (ATM) – this is used to refer to options near but not exactly at the money
  • Out of the money (OTM)

 

CALLS Strike Price PUTS
Strike below stock price ITM Strike above stock price
Strike same as stock price ATM Strike same as stock price
Strike above stock OTM Strike below stock

 

The purpose of the two tables below is to illustrate the relationship of different call and put strikes to the money and how these relationships change as the stock price moves. Notice how strike price “intrinsic” refers to the amount of the premium is in the money.

Moneyness – Stock Price is $20.78
CALLS PUTS
Relative to Strike Amount ITM Strike Amount ITM Relative to Strike
ITM $3.28 17.50 $0.00 OTM
ITM $0.78 20.00 $0.00 OTM
20.78
OTM $0.00 22.50 $1.72 ITM
OTM $0.00 25.00 $4.22 ITM

 

At $20.78, two of the call strikes are ITM and two are OTM. Same for the puts; two are ITM and two are OTM. But notice when the price drops to $17, all four call strikes become OTM and all four put strikes are ITM. This is based solely on the movement of the strike price.

Moneyness – Stock Price is $17.00
CALLS PUTS
Relative to Strike Amount ITM Strike Amount ITM Relative to Strike
OTM $0.00 17.50 $0.50 ITM
OTM $0.00 20.00 $3.00 ITM
20.78
OTM $0.00 22.50 $5.50 ITM
OTM $0.00 25.00 $8.00 ITM

Options that are $0.50 or so of the stock price and thus slightly ITM or OTM, frequently are referred to as near the money (or NTM) options. The term “at the money” also is used to refer to NTM options.

Understanding the moneyness of the call option is important, because then you only need to remember that the moneyness of the put is the opposite, ITM and OTM.

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Get the book on Amazon – Passive Income Monthly Plan: Create 60 Paychecks in 90 DaysLearn to create 60 paychecks per month in passive income. It’s simple – get started with $5 to build unlimited income. One of the truly passive income opportunities for monthly income – month after month!

Join the Monthly Income Newsletter voted the best value for option income trading

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Stocks and Options: Similarities and Differences

Many investors ask about the fundamentals of options and the difference between types of options. Here I share some background on the fundamentals of option trading. Bonus: An active option trade is shown below for our Covered Call of the Week.

There are both similarities and differences between stocks and options. Some think of options as a stock substitute which is correct in some cases. However, it is important to know the differences as you include both in your investing plan.

Similarities:

  • Stocks and options are both securities. Options are technically derivatives since they relate to another security: shares of stock.
  • Stocks are traded on exchanges and also over-the-counter. Stock options trade only on exchanges regulated by the SEC.
  • Market makers buy and sell stock options as they do stocks.

Differences:

  • Stock represent an equity ownership interest in the company. An option is a contract.
  • Options expire on their respective expiration dates. An option not exercised by its expiration date expires worthless. Stocks never expire except when a company goes out of business.
  • Stocks are represented by stock certificates, although buyers often don’t see the shares because they are held in the broker’s street name. But options are maintained in the form of electronic book entry only, and there are no certificates that represent options.
  • At any time, there is a fixed number of shares of stock outstanding. However, there is no limit to the number of option contracts that can be created on a stock.
  • Holders of stock have the right to vote and receive dividends, but holders of options have neither, since the option is only a contract to buy or sell.

COVERED CALL TRADE OF THE WEEK

KKR & Co. (KKR)

The KKR Oct 25, 2019 covered call with a $27.50 strike price (selling at $0.85) could potentially yield a 3.89% return if KKR stays above $27.50 a share at expiration 26 days from now. The covered call has a 3 Key (Moderate Relative Risk) ranking. On 07/26/19, Argus Research set a $31.00 12-Month price target for KKR, which is currently trading at $3.68 below that target. By using this covered call strategy potential returns may be higher than simply holding the stock if KKR stays below $28.38 through Oct 25, 2019. The covered call strategy offers limited protection if the stock drops in price, but if the stock goes below $26.47 expect losses.

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Get the book on Amazon – Passive Income Monthly Plan: Create 60 Paychecks in 90 DaysLearn to create 60 paychecks per month in passive income. It’s simple – get started with $5 to build unlimited income. One of the truly passive income opportunities for monthly income – month after month!

Join the Monthly Income Newsletter voted the best value for option income trading

Try Robin Hood to get FREE stocks 

Create a Passive Income Machine for Endless Income

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