I probably don’t have to tell you that the outlook for the markets is incredibly uncertain today. But that’s especially true for folks who are nearing or already in retirement.
Traditional fixed-income investments like bonds no longer offer a reasonable risk-to-reward proposition. Bank accounts and CDs pay nothing. And even safe, dividend-paying stocks generally don’t provide enough income for most folks to get by on.
Meanwhile, soaring inflation is quietly eating away at their savings, making it even harder to earn enough income in the future.
In short, the need for safe, consistent, and meaningful income streams has never been greater. Yet it seems like there are fewer viable options available to investors than ever.
And we’ve taken action.
On Tuesday night, we held one of the biggest events in our company’s history.
We officially introduced our newest analyst, Mike Burnick. And we unveiled a brand-new investing product – Dividends on Demand – that we created to give you the income opportunities, investing safety, and long-term predictability you’ll find nowhere else.
The response – already – has been huge.
In this week’s Money Talks, I want to take a few moments to share a little more about why I’m personally so excited to have Mike join our team.
First and foremost is Mike himself.
As I mentioned last week, his resume speaks for itself. He’s a 30-year market veteran and income generation specialist. He’s authored multiple books and reports on investing and finance. And he’s been featured all over the financial media.
But he’s also just a wonderful person. He cares deeply about helping everyday investors like you and me reach their financial and retirement goals. And I just know you’ll love learning from him in the months and years ahead.
But the second reason I’m excited has to do with Mike’s Dividends on Demand strategy specifically.
It’s a simple way to generate big, consistent income payouts that typically would require significant risks.
Yet, when done the way Mike recommends, it’s literally as safe as owning shares of the highest-quality dividend-paying stocks the regular way.
But because this is Money Talks, I want to give you a peek at the basics – and urge you to take the time to study it yourself.
The first step is to identify a high-quality stock you’d like to own.
The “forever stocks” I mentioned a couple of weeks ago are a great place to start your research. Ideally, you would choose a stock that also pays a consistent, growing dividend, as I explained last week.
If possible, I would also recommend choosing a stock that meets all our usual TradeSmith criteria as well.
At a minimum, I would stick to stocks that have recently triggered an Entry Signal or are otherwise already in the Health Indicator Green Zone.
TradeSmith subscribers can further tilt the odds of success in their favor by choosing stocks that also meet one or more of our Ideas by TradeSmith strategies. You might also look for stocks that are in or near a bottom or “valley” area according to our Timing by TradeSmith indicators.
Because Mike’s strategy also involves selling cash-secured and stock-covered options, the stock should also be priced so that you can reasonably afford to buy in 100-share lots.
While this strategy can work well with just about any account size, this does mean investors with smaller accounts may need to avoid higher nominally priced stocks.
Once you’ve chosen a stock, the next step is to sell a cash-secured put on that stock. This should be an out-of-the-money option expiring within a month or two and offering a reasonable premium.
Those of you who are familiar with options strategies will recognize this first step is essentially the same as selling puts strictly for income.
However, there is an important difference.
When selling puts as a standalone strategy, most folks want to avoid being “put” the shares. They want the put to expire out-of-the-money, so they can simply keep the premium (or “income”) they collected upfront without having to buy shares.
That isn’t the case here.
With this strategy, the ultimate goal is to buy shares of a high-quality stock you want to own at a discount. Since there’s no need to worry about being put shares, you can potentially target options with higher premiums than you would otherwise.
That said, it’s absolutely fine if the put you sell expires worthless and you don’t get the chance to buy the stock right away. You can just sell another put and try again, and earn additional income while you wait.
Eventually, you will get put the stock. And this is where the second part of this strategy comes in.
Once you own shares, two things happen.
First, you immediately become eligible to collect any regular quarterly dividends the stock pays. Second, you become eligible to sell covered calls to collect more income.
You’ll generally want to sell a relatively further out-of-the-money option than you did in the first step. And you’ll generally want to choose options expiring in a month or so.
That’s because in this case you want the call option you sell to expire worthless.
If it does, you get to keep holding your shares of the stock – and continue to collect its quarterly dividend – and sell another call option to collect income all over again.
The idea here is to repeat this process every month or so – sell a call, collect income, rinse and repeat – until the stock becomes unhealthy or you otherwise decide to sell.
Depending on how the overall market is performing, you might end up holding these positions from a few months to years at a time.
As you can see, with this strategy, you can get paid to buy a high-quality stock, and can then collect income far exceeding that stock’s regular dividend payment for months or even years at a time. If you simply follow Mike’s simple step-by-step process to the letter, you’re virtually guaranteed to earn more income – and make bigger total gains over time – than you would simply buying and holding shares of the same stock directly.
Mike’s research shows that total annualized gains of 20%, 40%, and even 60% or more aren’t unusual.
But again, because you’re only trading cash-secured and stock-covered options, you’re not taking any more risk than owning those same shares the normal way.
That’s a rare win-win combination you won’t find in most investment strategies, particularly those that generate significant income streams.
Now, I’m confident just about any investor with a basic understanding of options trading can successfully use this strategy. It’s really that simple and easy to follow.
However, I also want to be perfectly clear about something.
While I believe anyone can safely make money with this strategy, not everyone is likely to be able to consistently earn the maximum gains possible. That’s what Mike is here to help you do.
Choosing the ideal put and call options to sell with this strategy can be tricky. You must balance the profit potential of the trade against its probability of success. And that’s particularly true when selling covered calls.
For example, if you choose an option that isn’t far enough out of the money, you can earn a larger potential profit on the trade. However, that option will also have a much higher chance of expiring in the money, which could result in your shares getting called away.
You’d make more money initially, but you may lose the chance to sell additional calls and earn more income in the future, resulting in lower total returns.
On the other hand, if you choose an option that’s too far out of the money, the chances of your shares getting called away are relatively low. But you also won’t earn as much income from each trade as you otherwise would.
Again, your total returns would be lower than they otherwise could be.
To maximize your returns, you need to be able to consistently identify options with the best combination of relatively high profit potential and relatively low probability of expiring in the money.
Unfortunately, as I mentioned earlier, this is often easier said than done. In my experience, you really need at least one of the following three things to do this consistently:
- An experienced professional like Mike who can guide you and teach you along the way.
- Powerful tools – like we offer in CoPilot by TradeSmith – that can do a lot of the heavy lifting for you.
- A thorough understanding of options pricing (including the Greeks – delta, gamma, theta, and vega – that are used to calculate potential risk and return).
Now, if you’ve been reading Money Talks for long, you know I’ve never done a lot of marketing or product promotion here. And that’s not going to change today.
Fact is, any of those three choices are viable ways to master this strategy, depending on how much time, money, and effort you’re willing to commit.
But I truly believe Mike’s new Dividends on Demand service is easily the most accessible way for most folks to make maximal returns with this strategy.