This Income Strategy Has a 90%-Plus Win Rate
Last week, we gathered our team here at Banyan Hill and held our biannual retreat.
It was a great week in South Florida for everyone. We brainstormed new ideas and spent hours working to provide a better experience for you.
We had industry expert after industry expert come in and share their thoughts with us. They covered a lot of insightful information.
However, whenever they started a new topic with “Here’s my favorite…” was when I knew it was time to pay attention.
That line appeared ahead of every key point I walked away with.
In short, when an expert says: “Here’s my favorite…” you need to perk up.
And today, I’m going to show you my favorite way to collect income, so it’s time to take notes.
A Winning Strategy
This strategy is one that allowed readers of my Pure Income service to capture several great gains all within the last five months. A 15.5% gain on Charles Schwab Corp. (NYSE: SCHW) in two months. A 15.9% gain in AES Corp. (NYSE: AES) in less than two months. And a 24% gain from Trinity Industries Inc. (NYSE: TRN) in about three months.
Our track record has one of the best win rates you will ever find. The win rate sits at greater than 90%. We’ve had more than 100 winning trades over the past five years!
It was made possible thanks to our strategy, which is selling put options.
Selling puts allows you to generate a steady stream of income before you ever purchase a single share of stock.
Instead, you are agreeing to purchase shares if they fall below a specific price level that you pick — and you get paid to take this agreement.
Regardless of the outcome, you still keep the income you collected to begin with.
Let me show you a recent example…
Name Your Price
Fastenal Co. (Nasdaq: FAST) supplies the world with the nuts, bolts and screws that literally hold everything together.
This is a top-branded company in the industry. It offers several advantages over its competition. A few are scaled due to its size, ability to bundle products with services and customization at its facilities.
And — for income investors, this is important — Fastenal has paid out a dividend every year since 1991. It has increased that dividend each year for the past 19 years.
In short, with a 3% annual dividend yield and the competitive advantages I mentioned, it’s a stock I’d like to own today.
But instead of buying shares at the current price, we can sell a put option. This means we are going to name our price, collect income, and then, in the worst-case scenario, own shares of the stock.
Here’s how it works.
A Win-Win Situation
Fastenal is currently trading around $43.
We can agree to buy shares if the stock falls below $42 by selling to open a November 2017 $42 put option.
When you select that put option, the price should be about $2 per share, or $200 per option contract, since one option contract represents 100 shares of stock.
That means for every 100 shares of stock in Fastenal you wish to buy, or every put option contract you sell, you will collect $200 to do so.
Not a bad deal.
You get paid an instant 4.1% yield for possibly buying shares of a stock you don’t mind owning at current prices.
Once you place your order (be sure to use “sell to open”), only two outcomes are possible.
- You end up owning the stock.
- The option expires worthless, meaning that the price of the stock stayed above our strike price and you didn’t get a chance to own the shares.
In either case, you keep the income you collected.
So you either get paid 4.1% to buy the stock, or you get paid 4.1% to not buy the stock…
Now you can see why this is my favorite income strategy — it’s a win-win situation.
And remember, this trade only lasts a little over three months. If you repeated the trade roughly four times a year, you could set yourself up to collect 16% a year, just from income.
Chad Shoop, CMT
Editor, Automatic Profits Alert