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Editor’s Note: In today’s Daily, we welcome back Palm Beach Research Group Editor-in-Chief Jeff Remsburg. Jeff’s developed a cult following among our subscribers. They adore his knack for giving simple explanations of advanced—and lucrative—investing concepts… |
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From Jeff Remsburg, editor-in-chief, Palm Beach Research Group: “How about 1,200 bucks,” you ask. “We’ll have a deal.”
It’s last week. You’re standing outside Quicken Loans Arena. On a last-minute decision, you’ve flown to Cleveland for Game 6 of the NBA Finals.
For the last 10 minutes, you’ve been haggling with a scalper for a ticket.
“Forget it,” he says. “The market value is $1,500, easy. And I bet I can find someone who’d pay at least $1,800.”
As he starts to disappear into the crowd outside the arena, an idea hits…
“Wait!” you yell out. “I have a new offer—a contingency deal.”
“How about I promise to buy the ticket for $1,200, any time up until ten minutes before tipoff. Between now and then, you can go try to sell your ticket for 1,800 bucks. But if you can’t, you sell to me for $1,200.”
“What’s in this for you?” he asks.
“Well, first, I get the ticket at the discounted price I want. Second, I want you to pay me $100 cash right now, in exchange for giving you this guarantee. And I get to keep the cash regardless of who you end up selling the ticket to.”
He thinks a moment, then agrees to the deal.
Congratulations, you just learned the essence of our Palm Beach Current Income strategy.
Now, I doubt any scalper would actually agree to this. But it’s an effective illustration of how we make money with options, week in, week out.
Many investors see “options” as mysterious, complex, and dangerous.
But an options trade is nothing more than a deal. That’s it.
Only, instead of agreeing to buy valuable NBA Finals tickets, we agree to buy valuable blue-chip stocks. They’re the stocks of the safest, sturdiest companies in the world; companies with beloved products, decades of outperformance, and iconic brands.
Think Apple, Coca-Cola, Johnson & Johnson…
But similar to the NBA example, our options deals come with conditions:
- They last for a specific number of days—that we choose.
- The price at which we might buy these elite stocks must be a discounted price—also, that we choose.
In exchange for making these deals, we earn cash. And we keep this cash… regardless of whether we end up buying the stock.
That’s what makes trading options such a powerful strategy. “Keeping the cash, regardless,” transforms flat markets into highly profitable markets.
See for yourself…
The chart below shows the Dow’s performance so far in 2015. (I added the red line to help you gauge the progress.)
If you’re a buy-and-hold investor, you see nothing—almost zero gains.
We’re close to the midpoint of 2015, and the Dow has gone nowhere. As I write, it’s on track to post a full-year return of about 0.34%. (We call this “full-year-equivalent” return an “annualized” return.)
But if you were an options trader, you’d look at this chart and see a 15.6% annualized return.
That’s because Tom—and his chief options analyst, William—have closed 22 full-cycle options trades this year. All were winners… and they’ve averaged a 15.6% annualized return.
So, while buy-and-hold investors find this market frustrating, options traders are cashing in. They don’t need the markets to race higher in order to profit.
Here’s how the same chart from above looks through the eyes of an options trader…
As you can see, “going nowhere” equals “making money.”
But I won’t ask you to take my word for this. The proof is in the numbers…
William and Tom have profited from 112 straight closed Palm Beach Current Income trades. Their overall track record since launching the service: 154 winners out of 157 total trades.
The average annualized return of these trades—including the three losers—is 16.7%.
Right now:
- The Dow is flat…
- The average savings account yields 0.09%…
- The average one-year CD yields 0.27%…
- The 10-year Treasury bill yields 2.41%…
But you could be trading options, making money 98.1% of the time. And safely generating a 15.6% annualized return.
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(If you’ve never traded options, do not try to place this trade.) The company is EMC Corporation (NYSE: EMC)—a true technology blue chip. This 35-year-old tech powerhouse dominates the data storage business. Over the coming years, we’re going to see an explosion in data storage needs as the Internet of Things connects 50 billion devices by 2020. (The estimated sum of all the revenues related to these connected devices is $2.5 trillion by 2020.) EMC is going to generate billions by being at the forefront of this trend. It will serve as a huge tail wind for the stock price. Yet, for now, the sluggish market is weighing down EMC’s stock price, keeping it locked in a “sideways pattern” (it’s not going up or down). But, as you can now see, that’s great for options traders. Check out EMC’s August 7 expiration, $26.50 put. As I write, it’s offering up a 3.2% cushion and a 14.4% annualized return (based on a market price of $27.38). (Important: Be sure to check the latest numbers on this trade before placing it to make sure it’s good—the market may have changed between the time of this writing and when you go to make your own trade. Palm Beach Current Income subscribers can use the Trade Evaluator.) |