It goes without saying that Warren Buffett is one of the
greatest investors of all time. His net worth jumped to $59
billion in 2013, ranking him as one of the very richest people in
His average annual return of 20% in the past 55 years doesn't
just put him ahead of all peers... it means he doesn't even have
Buffett's success in the stock market has been driven by an
ultra-conservative investment style.
Like many of us, Buffett loves a great deal. He only puts his
money into undervalued businesses. Buffett is so famously
risk-averse that he refuses to own technology companies.
But Buffett doesn't just sit around and wait for a great deal
on a stock he wants to own. In fact, one of his favorite
investment strategies allows for him to buy a stock at the exact
low price he wants, all while generating huge streams of
#-ad_banner-#You don't have to be a billionaire to do this
either. Any investor can use this trick.
Buffett's passion for value and a great deal was on display in
the financial crisis of 2008.
He lent Goldman Sachs $5 billion at the height of the panic.
He landed amazing terms on the deal as the financial sector
scrambled for cash. And after Goldman secured its footing, Warren
Buffett walked away with a capital gain of $2 billion in addition
to lucrative dividend payments.
Not long after, in 2009, Buffett and Berkshire Hathaway went
"all in on America's future" with a $34 billion investment in
rail shipper Burlington Northern Santa Fe (BNSF). Once again
Buffett bought at the exact right time after prices had swung
lower and shareholders were nervous. The value of Berkshire's
investment in BNSF has since more than doubled.
The list of Buffett's big wins goes on. It's obvious Buffett
knows a thing or two about a great deal. The man doesn't like to
But great deals don't come along often. In fact, they're
downright hard to find.
That's why Buffett employs a little-used strategy to not only
help him find his next great deal, but also
generate substantial amounts of income while he
. This is the same strategy my subscribers and I use in my
I'm talking about selling options. Warren Buffett is a known
options seller. Yes, the same man who warned against the use of
derivatives as "weapons of mass destruction."
Warren Buffett doesn't take investing or making money lightly.
His interest in selling options is purely profit-driven. He
recognizes the incredible benefits of selling options.
When Buffett sells an option, he is aiming to achieve one of
two desirable outcomes.
1.) Generate income:
Selling an option produces income that is immediately deposited
into the option seller's brokerage account.
2.) Chance to buy shares on a pullback:
If shares fall below a certain level, the option seller will have
a chance to buy shares at a big discount to recent prices.
Buffett has used option-selling strategies on many occasions
to help him boost his income and give him an opportunity to buy
shares on a pullback. (In
, we told you how he used this strategy with Coca-Cola.)
For example, when Buffett was in the process of buying BNSF in
2008, he was also executing a low-risk option-selling strategy to
boost his income and give him a shot at buying more shares on a
On October 6, Buffett sold more than 750,000 puts on BNSF. Two
days later, Buffett sold another 1.19 million puts.
Both transactions accomplished the same two goals. If shares
took a nosedive before the options expired in December, Buffett
would get a chance to buy more shares at a big discount.
But if BNSF kept rallying,
Buffett would simply get paid... for basically doing
In this case, that's what happened. BNSF continued higher, the
options expired worthless, and Buffett pocketed upfront income of
$13 million without buying a single share and tying up his
I'm using this strategy with my
readers. We're generating income upfront, with the chance to buy
well-known, trusted companies at huge discounts if prices should
In fact, we've been using this trick on stocks like Verizon
), Microsoft (Nasdaq:
) and Exxon Mobil (NYSE:
Again, these are companies I wouldn't mind owning. But instead
of buying them outright, I use the same options strategy Buffett
Let's look at a recent trade we did with Microsoft.
Microsoft is a highly regarded company, but the $36 share
price was a bit higher than I would have liked to pay for it. So
instead of buying it, I sold put options on the stock.
That way if the stock fell to the lower price I wanted, I
could buy the stock at that low price. If it didn't fall that
much, I'd simply get to keep the money I got upfront from selling
the option in the first place.
After 39 days, my Microsoft trade expired because the stock
price didn't fall low enough. I simply pocketed the money I made
upfront for a
5% return in 39 days
To put that in perspective, if I had bought
, I'd have to wait
just to get a 2.7% return from Microsoft's dividend. This way, I
was able to earn double the income yield in just over a month.
And again, I was able to do it without having to tie up my money
in shares of Microsoft, which were at a five-year high of $36 at
There's plenty more to share about the conservative options
strategy that we use in
, but I don't have enough room to share it all here. If you want
to learn more about this easy way to buy high-quality stocks at a
huge discount and generate income while you wait,
you'll want to see this
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