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How To Create Your Own High Yield Cash Machine

Many investors look to their portfolios for income.  To get current income, these investors should look for high yield investments.  High-yielding investments can be a little confusing if you just search for the biggest yields.  This article will share some guidelines to creating a cash machine for high income.

A “Real” High Yield Investment:

  • Pays dividends yields of 5% to 20% annual
  • Highly liquid vehicles that can be bought or sold through discount or online brokers
  • Less volatility than the average large cap stock portfolio
  • Drives dividends from cash-flow, not debt payments
  • Pays dividends monthly and/or quarterly

There are so many investment categories that offer high yield securities.  Here is a list of high yield investments:

  • Business Development Companies (BDCs)
  • Canadian Royalty Trusts
  • Closed End Funds
  • Convertible Securities
  • Corporate Bonds
  • Emerging Market Debt
  • Exchange Traded Funds (ETFs)
  • Exchange Traded Notes (ETNs)
  • Grantor Trusts
  • Master Limited Partnerships (MLPs)
  • Oil/Shipping Tanker Stocks
  • Option Income Funds
  • Preferred Stocks
  • Real Estate Investment Trusts (REITs)
  • Structured Products (i.e. STRIDES)

 While do you want to buy high yielding investments?  The five keys to the cash machine high income investment strategy are as follows:

  1. It pays a double-digit yield
  2. It’s highly diversified
  3. It’s highly liquid
  4. It’s flexible
  5. It offers upside appreciation with less volatility than common stocks

 To build your own cash machine portfolio you must do the following:  

  • Desire to build income portfolio
  • Look for securities paying yields of 5% to 20%
  • Invest in asset classes with strong fundamentals in pockets of economic strength
  • Rotate in and out of sectors of strength
  • Target capital appreciation of 10% to 15% per year

The bottom line is that all income investors should have at least a portion of their income in a cash machine with high yield investments.

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Using a Protective Put to Prevent Investment Losses

At Get Rich Investments, we create investing strategies to capture monthly income. This may take the form of covered call trades, cash-secured put trades, CEFs for monthly dividends and other strategies. However, as the market volatility increases such as we have experienced lately, investors get worried about protecting their capital. We do have an answer which is an effective strategy. It is called a protective put trade to protect against losses during a price decline. We like to also combine the protective put with our covered call strategy to have our income and protect our capital at the same time.

Please don’t take my word for it , here is how our friends at Fidelity Investments describe using a protective put.

There are two types of options: calls and puts. The buyer of a call has the right to buy a stock at a set price until the option contract expires. The buyer of a put has the right to sell a stock at a set price until the contract expires.

If you own an underlying stock or other security, a protective put position involves purchasing put options, on a share-for-share basis, on the same stock. This is in contrast to a covered call which involves selling a call on a stock you own. Options traders who are more comfortable with call options can think of purchasing a put to protect a long stock position much like a synthetic long call.

The primary benefit of a protective put strategy is it helps protect against losses during a price decline in the underlying asset, while still allowing for capital appreciation if the stock increases in value. Of course, there is a cost to any protection: in the case of a protective put, it is the price of the option. Essentially, if the stock goes up, you have unlimited profit potential (less the cost of the put options), and if the stock goes down, the put goes up in value to offset losses on the stock.

Let’s highlight how the protective put works. Assume you purchased 100 shares of XYZ Company at $50 per share six months ago. The cost of this trade was $5,000 ($50 share price multiplied by 100 shares).

The stock is now trading at $65 per share, and you think it might go to $70. However, you are concerned about the global economy and how any broad market weakness might impact the stock.

A protective put allows you to maintain ownership of the stock so that it can potentially reach your $70 price target, while protecting you in case the market weakens and the stock price decreases as a result.

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When the stock is trading at $65, suppose you decide to purchase the 62 XYZ Company October put option contract (i.e. the underlying asset is XYZ Company stock, the exercise price is $62, and the expiration month is October) at $3 per contract (this is the option price, also known as the premium) for a total cost of $300 ($3 per contract multiplied by 100 shares that the option contract controls).

If XYZ continues to go up in value, your underlying stock position increases commensurately and the put option is out of the money (meaning it is declining in value as the stock rises). For instance, if at the expiration of the put contract the stock reaches your $70 price target, you might then choose to sell the stock for a pretax profit of $1,700 ($2,000 profit on the underlying stock less the $300 cost of the option) and the option would expire worthless.

Alternatively, if your fears about the economy were realized and the stock was adversely impacted as a result, your capital gains would be protected against a decline by the put. Here’s how.

Assume the stock declined from $65 to $55 just prior to expiration of the option. Without the protective put, if you sold the stock at $55, your pretax profit would be just $500 ($5,500 less $5,000). If you purchased the 62 XYZ October put, and then sold the stock by exercising the option, your pretax profit would be $900. You would sell the stock at the exercise price of $62. Thus, the profit with the purchased put is $900, which is equal to the $500 profit on the underlying stock, plus the $700 in-the-money put profit, less the $300 cost of the option. That compares with a profit of $500 without it.

As you can see in this example, although the profits are reduced when the stock goes up in value, the protective put limits the risk to the unrealized gains during a decline.

We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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Option Basics: Risk and Diversification

The winners in option trading are those who manage the risk within their portfolio.  You must always monitor and protect your capital as if you lose your capital you will be out of the game.  Proper risk management starts with trading diversification and discipline to stick with your trading plan.

There are generally two types of portfolio risk: systematic and unsystematic.

Systematic Risk, also called non-diversifiable risk, is risk that cannot be eliminated.  It arises from factors which cause the whole market to move up or down, and can not be eliminated by diversification because it affects all securities. Examples of systematic risk are political or sociological changes that affect all securities.  Some of the most common forms of systematic risk are changes in interest rates or inflation.

Unsystematic Risk, also called diversifiable risk can be reduced or eliminated by diversifying your portfolio.  Unsystematic risk is risk that is unique to a certain industry, firm, or company.  Examples of unsystematic risk include: a company’s financial structure, weather and natural disasters, labor strife and a shortage of raw materials.  Since unsystematic risk affects a single company or industry, it can be mitigated by investing in many companies across a broad range of industries.

Option positions should be diversified.  A major advantage of option purchases is ‘truncated risk’, whereby your loss is limited to your initial investment yet your profit is virtually unlimited.  Option sells have a limited profit but should be diversified across several investments.  Diversification will allow you to use truncated risk to its maximum advantage.  While some of your positions will inevitably be  unprofitable, each profitable trade can offset several unprofitable trades. Option positions should be established among many underlying stocks and indexes in unrelated industries. This gives you diversification, which can help mitigate sector weakness.

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In order to trade options, your broker must first approve your account for option trading. There are various levels of option trading and each level has financial requirements that differ from broker to broker:

Level 1: Covered call writing
Level 2: Call and put purchases and covered put writing
Level 3: Spreads (requires margin)
Level 4: Uncovered call and put writing (requires margin)
Level 5: Index option writing (requires margin)

Be sure to ask your broker about their requirements for the level of options you plan to trade. Lastly, before you trade options, regulations require that you read Characteristics and Risks of Standardized Options prepared by the Options Clearing Corporation (OCC) and available from your broker.

Characteristics and Risks of Standardized Options prepared by the Options Clearing Corporation (OCC) and available from your broker.

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Want to be a Millionaire?

If you’re hoping to reach millionaire status some day, there’s one small move you can make now that will virtually guarantee it: automatically save an hour a day of your income. At least this is the advice from David Bach author of “The Automatic Millionaire.” This is good advice to start a savings plan to move toward financial dependence which is what we strive for in our investing at Get Rich Investments.

Suppose you make $50,000 annually and you work a full-time job, 40 hours a week. You’ll be paid for about 2,080 hours of work in a year, equaling roughly $25 per hour. Bank that much each day, and you’ll be golden, according to Bach.

We like to take this advice a step farther than Bach. It is always productive to develop a habit of saving money. This money can be used to create wealth and ultimately financial independence. The majority of us started our financial journey this way. While saving is a starting point, how you invest this money can accelerate your timeline to millionaire status.

You need to create an emergency account to cover 3-6 months of income. Then, invest in world class dividend stocks that growth their dividends over time. Look to invest in some closed-end funds (CEFs) that pay monthly dividends. There are so many CEFs to allow the investor to diversify across different market sectors to include REITS, preferred stocks, bonds and other types of investments. And sell options to generate immediate income!

This is what we excel at in our monthly income plan. I use put selling to create my favorite income strategy – the Put-Call-Dividend (PCD) Income Strategy. This is simple selling puts each month on a select stock to collect monthly income. If the stock gets put to me, then I sell covered call options for more income while also collecting dividends paid by the stock. I sell call options for premium each month until the stock is called away from me. Then, I will start selling puts against the stock again. This strategy is exactly why I only sell puts on stocks I want to own – world class, strong dividend stocks.

This create a method to compound your returns as you rollover the options income to create even more income. If you’re hoping to reach millionaire status some day, this will accelerate your journey.

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New Option Income Trade for 70% Return

Income Opportunity for 70% Option Trade

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 70% annualized.

Stock: Skechers U.S.A., Inc. (SKX) designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales.

Chart: We have detected a “Continuation Diamond (Bullish)” chart pattern formed on Skechers USA Inc (SKX on NYSE). This bullish signal indicates that the price may rise from the close of 39.77 to the range of 44.00 – 45.00. The pattern formed over 50 days which is roughly the period of time in which the target price range may be achieved. Skechers USA Inc has a current support price of 38.21 and a resistance level of 40.37.

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Strategy: We have an opportunity to sell options for income with SKX as the stock should trade higher in the coming weeks. I recommend to place your trade and exit when you have locked in profits due to the stock price moving higher. Our goal here is to make income short term so we can exit and compound capital into another trade.

For medium risk option trade, look to sell a March 2018 40 PUT for about $1.50. This creates a return of 3.9% to expiration (20 days) or greater than 70% annualized.

For a conservative trade, you can setup a covered call trade. You can purchase 100 shares of SKX and sell a March 40 CALL option for about $1.35 for an assigned return of 4.1% in 20 days.

We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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Learn To Make Monthly Income Trading Stocks And Options.

How to Capture a 50% Return During a Market Correction

Many investors have a belief that it is impossible to make income selling options during a market correction. I am here to show you how my subscribers have continued to sell PUT options during the recent market downturn. With the market down over 1,000 points? What are we crazy to take on this risk? Here is the trade we offer up as an example.

My subscribers entered a PUT option trade on WK (below) by selling22.5 PUT options with a February expiration. We entered the trade on January 19. In comparative terms, the SPY was around 280 at this time but fell to 255 in just three weeks. However, WK had increased to $23.50 or so at this time and finished the expiration over $25 per share.

This was a big win for PUT sellers as we captured a 4.2% return during a 10% market correction. This is a an annualized 50% return on a monthly income trade. And proof you can make money selling options in a down market. Our strategy is to identify stocks with upward price momentum that we can earn option income with an early exit point to compound returns.

 

 

 

 

 

 

 

 

Sell Put on Workiva (WK)

STRATEGY: Look at the February 2018 22.5 cash-secured put trade. For each 100 shares of WK stock you want to control, sell one February 22.5 put option for a $0.90 debit per option or better. That’s potentially a 4.2% return on the cash-secured put trade.

A “Symmetrical Continuation Triangle (Bullish)” chart pattern formed on Workiva Inc (WK on NYSE). This bullish signal indicates that the price may rise from the close of 22.10 to the range of 24.20 – 24.80. The pattern formed over 46 days which is roughly the period of time in which the target price range may be achieved. Workiva Inc has a current support price of 21.45 and a resistance level of 22.10.

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We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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

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Options Basics – Making Money With Delta

The most popular Greek is Delta which measures how much an option’s price moves as a result of a $1.00 price change in the underlying stock.  Call option values rise with the underlying stock while put prices move inversely with the underlying stock price.  Therefore, the deltas of calls and puts must be expressed differently.  If the option price moves exactly the same (dollar-for-dollar) as the stock price, then the call will have a delta of 1.0 while the put will have a delta of -1.0.  If the option only moves 0.4 for a dollar move in the stock price, the delta is 0.4 for a call and -0.4 for the put.

Delta is typically expressed as a fraction or percentage.  A 0.4 delta can be expressed as 45% meaning that the option will change value of 45% for every dollar move in stock price. Delta is useful for options at different strike prices.  For example:

Under Armour stock is trading at $67.14 – (a $3 increase in stock price equals);
the current month $67.50 call has a delta of .478 – ($1.43 change in option);
the $65 call has a delta of .666 – ($2.00 increase);
the $70 call has a delta of .289 – ($0.87 increase);
the $67.50 put has a delta of -.521 – (-$1.56 decrease);
he $65 put has a delta of -.329 – (-$0.99 decrease);
the $70 put has a delta of -.726 – (-$2.18 decrease).

As you can see, delta calculations are not difficult but it gives you information for making investing decisions.  Compare the option price change between a call and put at the same strike price.  At the $67.50 ATM call strike price, a $3 increase in Under Armour caused the call to increase $1.43 while the put decreased -$1.56 because of the different deltas.

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Also (not shown in example), as a call moves more into the money, some time value is converted to intrinsic value. This time value conversion is not the result of delta.  This will work for both calls and puts as the underlying stock price changes.  

In general, the more in-the-money the option, the higher its delta.  Only deep ITM options will have a delta of 1.0 although many ITM options will have a delta close to 1.0 near expiration.  Options OTM will have a delta of less than .30 as seen by the $70 Under Armour call above.

Delta matters as it can lose value fast.  For example, if you sold the $70 Under Armour call when the stock was at $67 then the call delta was 0.289.  Then the stock drops which makes the $70 call further out of the money.  Delta is also dropping with stock price decrease.  By the time the stock drops below $65 the delta could be at or below 0.20.  If you decide to buy the call to close, it would be more expensive to purchase because as delta falls the call loses value at a progressively slower and slower rate.

Clearly, the options delta changes to the underlying stock price dependent on whether the option is:

  • OTM (option not winning so delta is low)

 

  • ATM (option very close to winning so has a high delta)
  • ITM (option is winning so it has a very high delta)

This dynamic is truest for the current and next month options.  When options get further out in time, the delta dynamics begin to change.  The greater the time to expiration means more opportunity for losing options to win and for winning options to lose.  In general, the ITM option will have a higher delta for a LEAP compared to current delta while the OTM LEAP option will have a lower delta than the current delta.

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Strategies for Selling Options

It is widely known in the stock market to buy low and sell high.  Options are really no different than stocks as you should buy cheap options and sell expensive options.  The entire strategy of selling covered calls is selling overpriced options to generate more income.  
 
Call values move in the same direction as the stock price while puts move inversely to the stock price.  The amount of change in the option will be determined by the option’s delta.  If you think a stock price will rise then you would buy a call and if you think the stock price will decline you would buy a put.  
Traders sell options primarily to generate income.  The strategy used will be determined by what you decide the stock price will do in the future:
  1. Bullish/neutral – sell covered calls to create income
  2. Bearish – sell naked puts to generate income as the stock declines
  3. Bullish/neutral – sell OTM puts to create premium income while reducing assignment risk
  4. Bullish – sell ATM puts to acquire the stock at a discount price while keeping the premium income
It is important for the call writer to understand time value.  For the option writer, time value is the major source of income but the option holder sees time value as a negative because option value decreases as time decays.  In general, time is the option writers friend and the option buyers enemy.
In covered call trades, returns are generated by the time value of the option premium.  Assume that we bought the stock for $55 and we sell the $50 call for $7.00.  This is a nice premium but you are obligated to sell the stock at $50.  The time value of this option is $2.00 ($7.00 – $5.00).  If the stock is assigned at $50, then your total profit will be $2.00 or the time value of the option.
As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities.
Join the Monthly Income Newsletter voted the best value for option income trading
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Close This Trade for 450% Gain

2/1/2018 – MOD closed at $24.30 per share today. Buy to close the MOD 22.5 PUTs at $0.20 per contract.  This is a gain of $0.80 per option in 3 trading days. This is a 3.7% gain or 450% annualized return.

1/29/2018 – Get Rich Subscribers Release (NEW Trade)

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 93% annualized.

Stock: Modine Manufacturing Company (MOD) develops, manufactures, and markets engineered heat transfer systems and heat transfer components for use in on- and off-highway original equipment manufacturer vehicular applications.

The RSI is above 50. The MACD is positive and above its signal line. The configuration is positive. Moreover, the stock is trading above both its 20 and 50 day MA (respectively at 21.53 and 21.73).

Chart: We have detected a “Symmetrical Continuation Triangle (Bullish)” chart pattern formed on Modine Manufacturing Co (MOD on NYSE). This bullish signal indicates that the price may rise from the close of 23.25 to the range of 26.70 – 27.50. The pattern formed over 43 days which is roughly the period of time in which the target price range may be achieved. Modine Manufacturing Co has a current support price of 21.15. No resistance level has been found.

Strategy: We have an opportunity to sell options for income with MOD as the stock should trade higher in the coming weeks. I recommend to place your trade and exit when you have locked in profits due to the stock price moving higher. Our goal here is to make income short term so we can exit and compound capital into another trade.

For medium risk option trade, look to sell a February 2018 22.5 PUT for about $1.00. This creates a return of 4.6% to expiration (18 days) or greater than 93% annualized.

For a conservative trade, you can setup a covered call trade. You can purchase 100 shares of MOD and sell a February 22.5 CALL option for about $1.75 for an assigned return of 4.6% in 18 days.

We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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Why Sell Covered Calls?

Sellers of covered calls seek two objectives: additional income from their stock portfolio and protection from a market decline in the price of their stocks.  The call premium helps the option writer to achieve these goals.  With the covered call strategy, you can use stocks you already own or you can purchase new shares to sell covered calls on.  In either case, you will not be overly concerned about the the price movement of your stocks over a period of time.  However, you will only write covered calls on stocks you already own.
 
We can apply this call writing strategy to dividend paying stocks.  You will be getting two sources of income: the dividends and the premium you received from selling the calls.  In addition, there is potential for a third source of income if the stock were to increase in price.  If we were to allow the stock to be called away, we would receive the strike price in addition to the premium and dividends.  This is an outstanding scenario where you can potentially receive three sources of income from one investment!

However, the call writer does not have to remain obligated to deliver the stock.  The writer can terminate the obligation if it has not been exercised by purchasing to close an identical option at current premium price.  Also, if the option is exercised, you do not have to deliver the original stock as you can purchase new shares to fulfill your delivery obligation.

When you write a covered call, you still own the stock and can receive all dividends paid before the options expire.  When you sell options, you begin with an immediate profit rather than an uncertain potential gain.  The most you can make is the premium received and the price of the strike minus your cost of the purchase of stock.

There are always opportunities for investors to use options are part of their total investing plan.  With careful stock selection and monitoring of your position, selling options can:

    • Boost annual income by 15 percent or more;
    • Be used for tax benefits and low costs;
    • Offer a variety of choices such as the underlying stock, strike prices and time periods.

The best rule: never buy options, only sell them!  Buying options is speculation while selling options is investing.

Some income services charge $2,000 – $5,000 per year to subscribe.  These guys are getting rich from subscribers – not providing a cost effective service.  There are no gimmicks, no bait and switch or added fees.  You will be charged monthly with no required annual subscription.  We are convinced that you will like the quality of service and continue to make monthly income. You will create a new stream of monthly income with our service.

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