Markets

This Strategy Makes Buy-and-Hold Obsolete

It's one of the easiest and safest ways to generate 20%-plus returns on a regular basis.

Once you've mastered the technique, I wouldn't be surprised if you stopped trading stocks or buying and holding investments for years at a time. That's how powerful this strategy is -- it can drastically improve the way you make money in the markets, forever. That goes for conservative income investors and aggressive traders alike.

The technique is actually pretty simple, but it requires some investors to leave their comfort zone. You see, it involves options, one of the most misunderstood corners of the financial world.

Many investors steer clear of options because they have a reputation for being risky, but that's not always the case. Covered calls, one my favorite ways to generate large income streams and capital gains, can be more conservative than buy-and-hold investing.

In fact, The Wall Street Journal calls it "one of the most conservative... strategies available to professional and individual investors alike."

Simply put, covered calls allow you to get paid upfront to potentially sell a stock you own at a higher price sometime in the future. Whether the stock goes up or down, you can come out ahead.

That's not to say covered calls are risk-free -- no investment is. But they can actually help reduce risk. Consider what happens when you sell a covered call:

For every option you sell, you receive income, known as a premium, upfront in exchange. This money is yours no matter what. It's deposited in your account just like a dividend.

But the benefits don't stop there. Once you sell a covered call, one of two things can happen -- either the underlying stock rises in price or it falls.

If it declines in price, your shares will decrease in value, but you have the option premium to counter the loss. In other words, if the shares fall, you're better off selling covered calls than simply holding the stock.

Meanwhile, as long as the shares stay under the strike price, the option expires worthless for the buyer. That's not necessarily a bad thing. When an option expires worthless, it means you can sell another call on the stock, capturing another big income payment. This is why I only recommend selling calls on high-quality stocks that I would be happy to own for the long term.

And if the stock's price rises, that's good, too. Since you own the shares, any increase in the stock's price increases the value of your holdings -- in addition to the option income you receive.

If the shares rise above the call's strike price, you will have to sell your shares to the option's owner. But that's not a bad thing either -- it means you lock in a profit.

Anything between the price at which you originally bought the shares and what you sell them for is pure profit, in addition to the cash earned when you originally sold the option.

Let me show you what I mean...

On February 21, I told my Maximum Income subscribers about an opportunity in shares of appliance retailer Conn's (Nasdaq: CONN ). I recommended readers purchase shares at around $34.50 and sell the CONN March $35 Calls, which were trading around $1.60 a contract.

Instantly, the trade generated about $1,600 in income for anyone who bought 1,000 shares and sold 10 calls.

About four weeks later, my readers had an opportunity to earn an additional $1,050 on the exact same shares by selling CONN April $40 Calls for $1.05 per contract. Keep in mind that income generated from selling calls is yours to keep no matter what and is deposited straight into your brokerage account.

Best of all, during that time the shares soared -- my subscribers earned capital gains of $5,400 on every 1,000 shares they purchased.

The trade is now closed, but we earned $8,050 in a matter of weeks -- more than 213% annualized!

If you're interested in learning more about my strategy and receiving trades just like this twice a month, I urge you to give my Maximum Income advisory a try. My publisher has authorized a temporary introductory rate for new subscribers that amounts to a $300 discount off the regular price. You'll lock in a one-year subscription to Maximum Income for just $199 (or save even more with a two-year subscription), but the offer is only good until midnight tonight .

This is the lowest price we've ever offered.

I can't stress it enough. If you are even slightly interested, you can learn more and lock in the massive discount we're offering today by following this link . If you decide Maximum Income isn't for you, then you can always take advantage of our no-questions-asked 60-day money-back guarantee.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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