I’ve written many times about using a cash-secured put sale strategy as a disciplined way to enter a long stock position at a lower price or get paid not to.#-ad_banner-#

I have a slight twist on this strategy that I call the “option wheel” process. It takes advantage of time decay and volatility by collecting premium for selling front-month put options and repeating that process to generate regular income until the stock is assigned to you, allowing you to get in at a discount, and then selling covered calls to lower your cost basis even further until you are called out of the stock.

The Aug. 13 Research In Motion (Nasdaq: RIMM) trade recommendation to sell the RIMM Sept 7 Puts for 50 cents had shares assigned at $6.50 after expiration on Friday, Sept. 21. On Monday, shares traded below $6.25, their lowest level since 2003.

Now that we have been assigned shares of RIMM, a covered call can be sold while we wait for a potential turnaround in the stock. The high volatility provides healthy option premium to lower our basis cost again. And the time decay for out-of-the-money front-month options is also ideal with three weeks until expiration.

Action to Take –> Sell to open RIMM Oct 7 Calls at $0.50 or better using a good-til-canceled (GTC) order.

Though the stock needs a modest bounce to be called away, taking in another $0.50 for the $7 call lowers our cost basis for owning RIMM shares to $6. That price is below nine-year lows, and computes to 8% off of our entry price of $6.50.

If RIMM is trading above $7 at October expiration, the shares would be called away for at 17% return on investment ($1 profit divided by $6 cost). If not, a November covered call option

can be sold to continue to drive down the cost basis. And you can keep repeating the process until the stock is called away to close out position.

This article originally appearead on TradingAuthority.com:

Earn Instant Income on a Once-Mighty Stock Trading at 9-Year Lows