This article is what we call a "Hall of Fame" essay - a title
we've reserved for some of the finest
pieces ever written. This essay explains how Amber Hestla is
using an options-selling strategy to safely boost her income
every month. When we originally published this essay, Amber's
track record was 25 for 25. Now, she's 52 for 52.
"Always be in a position to trade another day."
Those were some words of advice John Bollinger gave Income
Trader's Amber Hestla as they sat around the dinner table at
Ted's Montana Grill in Denver two weeks ago.
John, like Amber, has made a career out of trading options. It
was his initial work with options back in the '80s that lead him
to develop the Bollinger Band(
), a technical indicator used by analysts the world over to
identify when an asset may be overbought or oversold.
Given his contributions to the profession and his
accomplishments as a trader, it's safe to say John has had
considerable success navigating the options market. So when Amber
asked him what the key to that success has been, she wasn't
surprised to hear his answer:
"Always be in a position to trade another day."
As any good trader or investor knows, you should always have
capital preservation in mind when taking a position -- especially
when it comes to options.
According to our research, nearly 80% of people who buy
options lose money in the process. With those kinds of
statistics, it's not hard to see how some options traders can
turn a large fortune into a small one in no-time flat.
But just because the odds are against you, it doesn't mean you
can't safely make money in the options trade...
Since Amber launched her premium newsletter, Income Trader,
earlier this year, all 25 of her closed trades have been
profitable... giving her (and her subscribers) an average gain of
8.6% every 48 days.
What's been the key to her success?
For one, Amber insists on "selling" options, not "buying"
Since 80% of options buyers are losers, then 80% of
must be winners.
By limiting herself to selling puts instead, she is significantly
stacking the odds in her favor.
But Amber also has another defense mechanism, and it's similar
to one that Bollinger has used though out his entire 40 year
investing career. As he went on tell to her at their dinner
together -- "I only take trades that offer a high margin of
If you have ever read anything published by Amber, you've
likely heard that phrase before. That's because she puts safety
at the forefront of every one of her recommendations. In fact,
for her to even consider taking a position it has to have a
"margin of safety" of at least 70%...
For a "put" seller like Amber, that means only selling options
with at least a 70% chance of expiring worthless (when a "put"
expires worthless, the seller gets to keep the premium they
collected from selling the option as pure profit).
That's why she only sells puts on stocks she thinks are
undervalued. The more undervalued the stock is, the less likely
shares are to descend below her recommended strike price -- the
price the stock has to fall to until the "put" option is no
Let me show you an example...
In July, Amber recommended selling puts on Humana Inc. (NYSE:
), the nation's second-largest provider of Medicare benefits in
the United States.
At the time, the stock was trading at $83 a share. But Amber
thought the company's fundamentals supported a higher price
point. As she told her readers:
Right now, (Humana's) price-to-earnings (P/E) ratio of 9.7 is
well below the insurance industry average of 14.1.
And in addition to the low P/E ratio, HUM has historically
enjoyed a better-than-average return on equity and less debt as
a percentage of equity than its competitors. These ratios
indicate that HUM is a well-managed company that should be able
to navigate upcoming changes in the industry.
If the most pessimistic analyst is correct, HUM is still a
buy. The average P/E ratio over the past seven years for
insurance stocks is 12.2. Using that ratio and the lowest EPS
estimate of $7.85 for 2014, HUM should be worth at least
In other words, at $83 a share, Amber thought the company was
undervalued by 10.7%. As a result, she told her
subscribers to sell August "puts" on Humana with a $75 strike.
Given the company's strong fundamentals and discounted valuation,
Amber believed there was an 83% chance that the price of the
stock would not trade below $75 by August 16 -- the day the
option expired -- and that the "put" would expire worthless.
Her assessment was spot on. In the two month period the trade
was open, Humana gained 10.3% -- closing at $91 a share on August
16. As a result, Amber got to keep the $85 in "Instant Income"
she collected from selling the puts as a 100% profit.
But even if the stock had fallen below the strike price and
Amber would have had to buy the shares... she would only have to
purchase them for $75 -- $20 below what she thought they were
That's the benefit of selling puts on stocks that you think
are undervalued. Even if the price of the underlying stock falls
below the strike price and you have to buy the stock, you're
simply buying shares of a great company that you already think is
trading at a discounted valuation.
In our opinion, this conservative approach is the key to being
a successful options trader. By limiting your trades to those
with only the highest margin of safety, you're able to take
advantage of the lucrative nature of the options market, while
also reducing most of the risk.
Of course, restricting yourself to "high-probability"
positions means you could miss out on big gains in other riskier
corners of the market. But for Amber, that's not a problem. After
all, her goal with
is to generate safe, reliable income. While that means she may
miss out on some trades with "10-bagger" potential, at least
she's comfortable knowing she'll be around to "trade another
Since this article was published eight months ago, Amber has
maintained her perfect record by closing an additional 27
straight winners. Her track record now sits at an astonishing 52
for 52 (you can see every single one of her closed trades
If you're at all interested in implementing Amber's strategy
in your own portfolio, now is the perfect time to get started.
For a limited time, Profitable Trading is offering a steep, 67%
discount to Amber's
advisory. You can learn more about Amber's strategy and lock in
this massive discount by
following this link
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