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Wednesday, October 10, 2012
There's still an extraordinary income trade available to Growth Stock Wire readers...
Almost exactly two years ago, I wrote a piece titled "How to Make 17% Income on the World's Safest Cheap Stocks."
The idea was buying shares of tech giant Microsoft at beaten-down, bargain prices... and then selling someone the right to buy those shares from you at a higher price. This is the practice called "selling covered calls."
And if you're willing to learn the basics of this strategy, you can still use Microsoft to safely collect 17% in annual income payments. Let me show you how it works...
In my original example, which we published in October 2010, I noted how you could buy shares of Microsoft (NASDAQ: MSFT) for around $24.42. And you could sell the November $25 calls for about $0.70.
In other words, you were buying shares for $24.42, then selling someone the right to buy them from you for $25 per share.
The premium of $0.70 resulted in an immediate 2.8% yield on the original stock position. The options had a lifespan of less than two months. So the 2.8% return was an "annualized" gain of about 17%.
To drive the point home, I covered this trade in "real money" terms...
You could buy 200 shares of Microsoft for $4,884. You could collect around $140 in super-low-risk premium for selling covered calls on your stake. And once those calls expired, you could do it all over again.
A 17% annual income stream on the $4,884 stake is $830. That's an extraordinary income stream coming from a position in a cheap, dominant, blue-chip stock.
Now... you might be thinking, "You're not telling us the full story. You can't repeat that trade all the time."
But... one year later... in October 2011, I wrote up basically the same trade. Same stock. Same options-selling strategy. I got creative with the piece's title. It was called "You Can Still Make 17%-Plus with the World's Safest Stocks." (This time, the trade was offering an annualized income stream of 21%.)
Keep in mind, Microsoft shares didn't have to "soar" for you to make money. You make money if the stock climbs, moves sideways, or even declines a little.
Microsoft spent the late-2010/late-2011 period moving sideways... Yet you could have used the stock to build a covered call position that would produce a 17%-plus yield.
And you still can...
Right now, you can buy Microsoft for around $29.35 per share. You can then sell the December 30 calls for $0.70. That produces an instant "yield" of 2.4%.
The calls expire in December, two months from now. If the stock stays where it is or moves lower, you keep your shares... and you can sell another round of calls. Making this trade six times in a year will produce a 14% return.
If the stock has moved higher by then, you sell your shares at $30. That will give you a 4.6% return. And you can do it all over again. Making this trade six times in a year will produce a 27% return.
Add in the annual 3% dividend Microsoft pays, and you're collecting between 17% and 30% a year on a cheap, dominant tech stock.
Looking back, this trade has consistently been a winner for two years. I expect it will be again this year.
All you have to do is learn the basics of this approach and put them to work for you.
Dr. David Eifrig has used covered calls and another income-generating strategy to string together an unprecedented win streak for his subscribers. People may not believe closing 83 winning trades in a row is possible… But if you use these strategies right, it is. Learn how Doc has done it here.
Growth Stock Wire classic: Back in 2007, Jeff Clark showed readers the power of selling covered calls... and shared two pitfalls to avoid. Learn more about this income strategy here: Earn 15%-20% with This Safe Income Strategy.
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