February 16, 2015
The Best Win Rate
I've Ever Seen in Trading
By Jimmy Butts
It's one of the most impressive track records I've ever witnessed in my investing career.
We've written about it multiple times at Profitable Trading. When we first began writing about her track record, she had closed 26 for 26 winning trades... then it was 52 for 52... then 61 for 61.
I didn't think it could go on for much longer -- after all a perfect track record is nearly unheard of anywhere on Wall Street. A 60% win ratio is considered great.
But I'm here today to tell you that Profitable Trading's Options and Income Strategist, Amber Hestla, has closed an incredible 85 winning trades out of 85 in her premium advisory Income Trader.
Her strategy is helping thousands of investors pocket hundreds, even thousands of dollars in income nearly every week. She and her readers are able to capture this income by using one of the most misunderstood financial tools available -- stock options.
Now before you blow options off as a risky investment strategy that's too complicated, please hear me out.
You see, options were actually created to reduce risk. Most of the large investment firms use options, or derivatives, to hedge their portfolios from devastating losses and unforeseeable circumstances. This gives them a leg up on the average individual investor -- but it doesn't have to be that way.
You don't have to have an MBA from Harvard or years of trading experience with Goldman Sachs to understand options (that is merely what Wall Street wants you to think).
In fact, Amber has created a simple, eight-minute training video that will teach you everything you need to know to start generating income using options. Once you get the hang of this trading strategy, you will see how simple and safe it can be.
But before we get to the training video, I want to explain options, specifically selling put options.
If you've ever read anything about put options, then you're probably familiar with the traditional language used to explain what an option is: It's a contract between two people, a buyer and a seller, where the buyer of the option has the right, but not the obligation, to sell a stock at a given price, within a certain time period. The seller of the option has the obligation to buy a stock at a given price, in a given time period.
Now, if you just read that and it still doesn't make sense, that's OK, you're not alone. I was in the same boat at one time. And even if you go somewhere else, or have someone else explain it, they will probably rehash something along the same lines.
You might think to yourself, "OK, I've got it... something about rights and obligations..." But in reality, you still have no idea what this all means and how to use it to generate income.
To give you a different perspective, it may help to think about it like a real estate transaction.
Imagine your dream house (a good stock). It's in a great neighborhood, has great schools surrounding it -- everything you ever wanted in a home. You would love to own this home at almost any price, but you also want to get a good deal on it.
Let's say this home is currently worth $500,000 (like a stock's share price). You walk over to the owner and offer to buy your dream house if the value drops below $450,000 (your strike price) in the next 30 days. The homeowner agrees, and in return gives you $1,000 (your premium) for the right (but not the obligation) to sell you the house at this predetermined price of $450,000.
Why would he do this?
For the same reason we buy insurance on a home or vehicle -- we want to be sure we will get some value out of our property in the event something unfortunate happens.
In this case, the homeowner is willing to fork over $1,000 as "insurance," to make certain that he can still sell his home for $450,000 even if the market says it's worth only $400,000 in 30 days.
And you're willing to take the risk of buying it for $450,000 because this is a beautiful, reliable house that you've done your research on.
When the 30 days go by, the deal with your neighbor expires. If the house is worth $450,001 or more, you don't get to buy it for $450,000, but you do get to keep that $1,000 (the premium you collected) as pure profit. But if the house's value drops below $450,000 within that 30-day period, then you are obligated to purchase your dream home at an incredible discount (and still keep the $1,000).
Put simply, this is as close to a win-win strategy as it gets -- you either get to buy your dream home for a discount, or you get to keep an easy $1,000 premium you collected upfront if the house doesn't fall below the strike price of $450,000 in 30 days.
This is essentially how a put option works with a stock. You offer to buy a stock at a predetermined price, usually at a discount, and in return, the buyer of the option will pay you to have the guarantee to sell that stock at the predetermined price. Every day, this transaction happens over and over again in the stock market.
For example, in October, Amber recommended selling puts on AmTrust Financial Services (NASDAQ: AFSI) -- a property and casualty insurance company. She liked the company because its business focused on profitable niches rather than offering a broad range of products, and it generated an underwriting profit. This was a stock she would be happy to own shares of -- a key component to successfully selling put options.
She told her Income Trader subscribers to sell December $30 puts on this company for $1.20 per share. For every contract sold -- one contract is 100 shares -- they would generate $120 in instant income (the premium).
The stock was trading around $45.60 at the time of her recommendation. If the stock fell from $45.60 to $30 per share (the strike price), then her readers would be obligated to buy 100 shares of AFSI at $30 per share, but considering the $1.20 per share in premium, their cost basis would be $28.80. This represented a 37% discount!
But if the stock didn't fall to $30 in the next couple months, the option would expire and they would simply pocket the premium they collected for selling the puts.
When December rolled around, AFSI was trading around $56 per share. So they kept the $120 premium they collected when they made the trade in October and moved on to collect more instant income from another stock.
Amber replicates this strategy over and over again to generate hundreds and thousands of dollars every week. You can see how lucrative this can be. In the example above, if you sold five put contracts, or 500 shares, on AFSI you would have immediately collected $600 ($120 x 5 = $600). Ten contracts would amount to $1,200 in immediate income, and so on. And remember, you haven't actually purchased the stock.
Properly using options can be a powerful way to generate income, and like I mentioned above, Amber has put together an eight-minute tutorial explaining step by step what you need to do to start collecting income. If you're interested in using put options to generate instant income, then I encourage you to watch her presentation.
|
|
No comments:
Post a Comment
Keep a civil tongue.