Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘Cash secured puts’

How to Retire a Millionaire

From your early entry into the workforce and throughout your working life, you are always reminded to prepare for your retirement. We all realize the need to have income for the day when we end our working career. This is based on the classic mindset of saving for retirement. Most regularly deposit a portion of income in their 401 retirement plan. There is nothing wrong with this strategy as long as you are prepared to wait for your “someday” in 30-40 years or more. Many are behind in the amount needed to fund a comfortable retirement.

A June 2015 Government Accountability Office analysis found that that average Americans between the ages of 55 and 64 have accrued about $104,000 in retirement savings. Sound like a lot? Not when you realize that sum would translate into a $310 monthly payment if your money were invested in a lifetime annuity.*

There may be another option to complement your retirement. At Get Rich Investments, we focus on developing multiple streams of income. The strategy is simple, continue building monthly income until your investing income exceeds your current income. At this point, you have a monthly income to support your lifestyle and retire without having to scale back your living. The sooner you start building monthly income, the faster you will produce significant monthly income.

You can keep contributing to your 401K as this will be one stream of retirement income. Another income stream will be SSI if it is still a viable option when you retire. Then, you might want to consider building additional income streams through our strategies. You can start with a small account and watch it grow over time to your ultimate income producing investment. Of course, this will not happen overnight or next week as there is no get rich quick scheme.

How do we create multiple streams of income? We sell options such as cash-secured PUTs and covered call trades. Based on the type of stocks we invest, this is a lower risk strategy than small cap stocks. We also like to capture dividend income from stable, world class stocks. And, we diversify our income streams by investing in CEFs paying monthly dividends.

The amount of income you achieve will depend on your investment capital. Hey look, if we all had millions then we would already be retired. With our strategies you can compound your income over time to grow your monthly income. You can start with a small investment like you would with a 401 and add to it over time. It can compound faster than most envision. As your account grows, you diversify into more income streams such as CEFs using several types of investments.

If you spread your investments across these multiple streams of income, it will lower your risk of not having the income you desire. This is why we call our program the Monthly Income Newsletter. Yes, you can retire a millionaire!

Get started building your income 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.

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