Winter weather investing is always popular this time of year. Who can forget last year’s polar vortex that sent natural gas prices up 40% between December and February? This December has started out relatively mild across the United States, but January could bring the need for extra heating.

Trading on the weather can be a gamble, though, as Mother Nature does not always cooperate with our bets. That’s why I like to hedge my cold-weather plays by investing in stocks with strong year-round drivers as well. 

#-ad_banner-#While many look to utility companies and retailers for their winter plays, I like power generation. Demand for backup generators can spike during the winter if storms knock out transmission lines. Not only could equipment providers see higher sales on a rough winter, but spring brings the potential for higher sales on storm activity.

Generac Holdings (NYSE: GNRC) dominates the market for home standby generators with a 75% share. It books 51% of its $1.43 billion in annual sales from residential equipment. The company’s industrial and commercial segment, responsible for 44% of sales, is diversified across the energy, industrial, light commercial and construction markets. The company has a strong footprint in North America and is expanding geographically with distribution in Brazil and Europe.

Lower sales this year after huge growth in the past three years spooked investors, and shares are down 14% over the past 12 months. While analysts expect a 4.5% decline in revenue this year, the company managed compound revenue growth of 19% annually in the past decade. And sales are expected to increase 5.5% in 2015. Profitability is strong, and Generac boasts the highest free cash flow yield (7.2%) among nine companies in its industry.

An aging power grid could also be a major driver for the shares, especially if the winter turns appreciably colder or we get a stormy spring. And let’s not forget the strain home cooling systems put on the grid in the warmer months. 

Between 30% and 50% of the utility transmission and distribution network in the United States is more than 40 years old, leading to more power interruptions. In fact, the number of power interruptions has increased at a compound annual growth rate of 17% over the past 10 years. 

Though residential generator usage is still fairly low, the company estimates every 1% increase in penetration equals a market opportunity of $2 billion.

Not only does the company stand to benefit from seasonal surges in residential power equipment, but it also has year-round sales potential through its commercial industrial segment. The company’s natural gas generators are gaining share against diesel competitors in North America due to their cost advantages. 

Book a Quick Profit or Buy Shares at a 5% Discount

I like Generac Holdings for a quick profit on a turn in the winter weather, but I wouldn’t mind taking a longer-term position either. This makes put selling a perfect strategy.

By selling a put option on a stock, we are agreeing to buy 100 shares per contract at the option’s strike price if shares are below that price when the option expires. For accepting the obligation, we are paid a premium, which lowers our cost basis. And if shares are above the strike price at expiration, that premium is ours to keep free and clear.

With GNRC closing Friday at $45.94, we can sell the GNRC Feb 47.50 Puts for a limit price of $3.80 a share ($380 per contract). If GNRC closes below the $47.50 strike price at expiration on Feb. 21, we will be assigned shares at that price. Since we received $3.80 in options premium, our actual cost is $43.70 per share, a 5% discount to the current price.

We want to make sure we have enough money in our account to cover the purchase. This means setting aside $4,370 for every contract plus the $300 we collected from selling the puts.

If GNRC closes above $47.50 on expiration, we keep the premium for a gain of 8.7% in just 75 days. If we were able to make a similar trade every 75 days, we would generate a 42% annual rate of return.

Note: Selling puts is one of the best strategies for generating consistent, market-beating returns. My colleague, Amber Hestla, has earned 43% average annualized gains with this strategy on her way to a perfect 78 for 78 track record. Get the details about those winners and learn how you can make the same trades by following this link.

This article originally appeared on ProfitableTrading.com: My No. 1 Winter Pick Could Yield 8.7% in Income in Just 75 Days​