How To Earn A 6.3% Yield From A Stock Paying 3.2%
As an active income investor, I’m always jumping around between financial websites. While I peruse these sites, I run across many investment ads promising all sorts of results.
Sadly, more often than not what I see is outright misleading advertising lining the pages. For every one method of income generation or investing that is legitimate and factually-based — there are ten others that are questionable.
#-ad_banner-#So when I tell potential subscribers of my premium newsletter, Income Multiplier, that my readers and I have been able to generate returns of 7.6%, 8.5% and 8.9% in as little as 53 days, it’s understandable that such claims might be received with a little bit of skepticism. So that’s why in today’s essay I want to explain how my Income Multiplier system works.
No fluff — just facts.
To put it simply, we sell options on high-quality stocks to generate income.
I’ll explain more about how we do this in a moment, but first let me begin by showing you my track record. These are all of my closed trades since inception.
| Trade | Days In Trade | Capital | Trade Return On Capital | Annual Return On Capital |
|---|---|---|---|---|
| VZ May 46 Puts for $0.55 | 35 | $920 | 5.4% | 56.7% |
| RAI May 46 Puts for $0.75 | 53 | $980 | 7.6% | 56.1% |
| HAL Jun 55 Puts for $0.55 | 57 | $1,100 | 4.9% | 31.4% |
| ADM Jun 41 Puts for $0.40 | 50 | $820 | 4.5% | 32.9% |
| LVS Jul 70 Puts for $1.50 | 50 | $1,500 | 6.2% | 45.2% |
| CME Jun 65 Puts for $0.50 | 60 | $1,300 | 3.8% | 23.1% |
| WAG Jul 62.50 Puts for $0.70 | 49 | $1,250 | 5.3% | 39.4% |
| HFC Sep 42.00 Puts for $0.85 | 65 | $840 | 2.7% | 15.0% |
| MSFT Aug 38.00 Puts for $0.68 | 94 | $760 | 8.9% | 34.6% |
| ABBV Aug 47.50 Puts for $0.60 | 87 | $950 | 6.3% | 26.4% |
| DOW Sep 47.00 Puts for $0.85 | 85 | $940 | 8.5% | 36.5% |
| MET Sep 48.00 Puts for $0.59 | 78 | $960 | 5.1% | 23.0% |
| LO Sep 52.50 Puts for $0.74 | 71 | $1050 | 6.6% | 34.0% |
100% of my closed trades are winners — all with double-digit annualized yields.
In short, every week I recommend income generating investments using my high-probability put-selling system. While some may be intimidated by the thought of selling options, the reality is that put-selling is quite simple. (And to make it even easier, each new subscription includes a video tutorial, interactive Q&A sessions and strategy guides.)
You see, selling puts isn’t just for investors with a bulging bank account. For example, I recently closed a trade that I recommended back in June for a 6.3% gain — annualize that and you’re looking at an impressive 26% return. Even better, with most brokerage firms, investors only needed a $950 deposit to execute the trade.
This profitable trade wasn’t with some high-risk small-cap stock either. We only focus on high-quality stocks with our system. It’s a time-tested strategy I first developed as a bond trader inside the walls of a multi-billion-dollar trading firm. Since then, I’ve figured out how to increase the strategy’s effectiveness and moved on to share this strategy with those who’ve followed my lead.
Here’s how it works…
When I first developed the Income Multiplier system, I created a fundamental screening system that focuses on four specific company traits that have a strong history of beating the market.
1.) Industry leader with sustainable edge
2.) Industry-best dividend and high dividend growth
3.) Companies that are buying back massive amounts of their own stock
4.) Undervalued share price
All of the companies in the Income Multiplier portfolio have these key traits. And that shows up in historical performance analysis.
Income Multiplier Stocks Beat the Market
What you see in the chart below is that the companies we currently have open positions in have crushed the market in the last 10 years, returning more than 170%. The S&P 500, meanwhile, gained a little more than 90%.
Looking forward, I fully expect this history of outperformance to continue.
So when I find a stock through my screening system and sell an option, I’m looking for 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.
Let’s see how this works looking at the recent trade we did with a top pharmaceutical company, AbbVie (Nasdaq: ABBV).
AbbVie has had a volatile run this year. When we executed the trade in May, the stock was trading even on the year after jumping more than 15% over the prior month. That made it a great time to implement our put-selling strategy on AbbVie.
The $53.54 share price was a bit higher than I would have liked to pay for it. So instead of buying shares, 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, my subscribers and I would simply get to keep the money we earned from selling the option in the first place (called the “premium”).
After 87 days, our AbbVie trade expired. In this case, the stock price didn’t fall to the point where we would have the opportunity to buy shares at a discount. But that’s OK. We simply pocketed the money we made upfront for a 6.3% return in 87 days.
To put that in perspective, if I had bought AbbVie shares, I’d have to wait all year just to get a 3.2% return from their dividend.
This way, I was able to earn almost double the stock’s yield in just under three months. And again, I was able to do it without having to tie up my money in shares of AbbVie, which had been pretty volatile all year.
So far I’ve made money on 13 out of 13 trades, and I see no reason why this kind of performance can’t continue. There’s plenty more to share about the conservative options strategy that we use in Income Multiplier, but I don’t have enough room to share it all here. If you want to learn more about generating more income in less time than traditional investing strategies, you’ll want to see this.