Earn money regardless of market direction

When it comes to trading, how I trade hardly matters. Down is fine, up is always better, sideways is the best revenge.

When you trade options, there are many ways to win: you can profit if the stock falls a little, when it rises higher, or if it doesn’t do much. Contrast that with the standard method of investing which is simply buying a stock. You may only profit if it goes up.

Even when you first buy a stock, you’re already in the red. The buy price (ask) is always higher than the sell price (bid). There are also commissions. Unless you are a commission-free floor operator who can take advantage of arbitrage, there is no sure winner.

That said, there are ways to put the odds in your favor. Selling put options, when used properly, is one of the most misunderstood yet valuable transactions on the market. For one thing, you immediately start with profit, by getting a cash credit to place a position. You don’t even have to own the shares, you just take over the shares. chance to own it at a discount price. Think of it like buying a car. Do you ever pay sticker price?

The strategy I use involves one of two types of trades: selling a put option with the possibility of owning the stock OR selling a call option against a stock I already own.

The key to all trading is to limit your risk, either by using technical analysis or sticking to the highest quality “boring” big name companies that have been around for decades. In my case, using a combination of these two strategies greatly increases the odds of success.

That said, you never want to overpay for a stock, even if it’s a big company. But with simple chart observations, you can identify the price points where a lot of money starts pouring in to support.

Let’s take an example from one of my 25 favorites, the retail giant Walmart. Walmart is a Berkshire Hathaway stake of super-investor Warren Buffet and has been increasing its dividend payout for many years. All the ingredients of a great company.

On the chart shown here, we can see how to analyze this value and when is the best time to enter a trade.

Notice what happens on this 1-year price chart as the stock falls to around 72.5. Every time the price hits that value, a lot of money comes in to “support” Walmart at that price, and the stock rallies. It already happened twice last year and recently it did it again in the periodic market correction that started in July 2014. So my favorite strategy to implement here would be to sell the 72.5 September put option on the which would immediately get a cash credit to my account. Since that cash is in my account, it could be used as credit to purchase shares should it drop below 72.5 on expiration day.

This would force me to buy the shares at 72.5 if they drop below that level at expiration. But in each case that never happened, so the contracts expire worthless and I just pocket the cash I received for taking that risk and walk away.

Now, I wouldn’t do this trade when I hit the 80 level because I wouldn’t get enough credit at the 72.5 strike price, but I could do the 80 option, but there’s a good chance I’ll get assigned the stock. But then again, what is the risk? You would still own a great stock at a discount price, and you could write call options against the assigned stock (which usually pays more than the quarterly dividend). Oneself get paid while waiting to sell my shares at the price I bought.

I only “lose” if the stock falls off a cliff. But wait, isn’t that exactly the same risk as buying the stock outright? You can bet your bile duct it is. However, I still have the advantage that I own the shares at a lower cost than the investor who directly buys the shares. The cash I receive reduces my cost basis and therefore my risk vs. just buying it outright.

Even if you are a buy-and-hold person, you can still make a profit by selling call options against your stock. Using simple charting techniques, there are favorable times to do so, increasing the chances that you won’t have to sell your stock. You only keep the immediate credit you get for selling the option.

No complicated math, just simple and clear observation of market psychology. If I could convince you that selling put options is a safe and profitable strategy, would you be willing to make it a part of your permanent investment future? Maybe you’ve thought about having a cash-generating home business with no products or sales involved.

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