I used to hate filling up my car with gas.

Every time I spent over $60, I thought of the new pair of shoes or a quality meal I could’ve treated myself to instead.

But now, I’m almost excited to see how much lower my receipt is every week. I know I’m not the only one feeling this way.

For the 90% of Americans who drive a car to work, gasoline is a necessity. Even when prices rise, many drivers have a limited ability to cut back on the amount of gas they use. So when prices fall, as they have recently, many consumers will end the month with more money left over for discretionary purchases.

Just think. If I can fill up my tank now for $40, how much do I save every year?

$20 per tank…four times per month… twelve months in a year. I’ll save $960, and that’s just the gas to get me to and from work.

Now, who knows if most people will use this extra cash to go on a shopping spree or just add it to their savings account. But Federal Reserve data show how a specific industry has benefited in the past and is set to benefit from cheaper gas now.


As the chart below shows, about 10 years ago as oil got cheaper, the consumer electronics and appliance industry was a beneficiary of this trend.
 

The chart shows the year-over-year percentage change in oil prices (black) and sales at electronics and appliance stores (green). As oil prices fell, spending at electronics and appliances stores trended higher. As oil prices rose, this type of discretionary spending fell. It’s not a perfectly inverse relationship, but as you can see, the general trend is strong.

This boils down to one thing… recent declines in oil indicate consumer electronics stocks could do well in the next few months.

Consultants at PricewaterhouseCoopers were already optimistic about the consumer electronics sector before oil prices plummeted. They are forecasting a record year in 2014, with consumer electronics sales topping $211 billion, a 2% increase from 2013.

So today, I want to share with you a trade that I recommended to subscribers of my premium newsletter, Maximum Income, just last week.

Although I’m recommending that you buy shares of this stock, that’s only one part of the deal. There’s a way to collect extra income on the side with the shares you own.

I’m talking about selling covered calls. It’s a topic my we’ve discussed in previous issues of StreetAuthority Daily, and it’s one of the most conservative ways to collect extra income from the stock market.

Using covered calls to collect cash actively creates the gains we want to see.

Here’s how the strategy works.

When you sell a covered call, you’re agreeing to sell 100 shares of a stock that you own to someone else on a specified date (the expiration date), at a specified price (the strike price). In exchange for selling the covered call, you are given a cash “premium” immediately.

So when I find an ideal stock, I buy it. Then I sell a covered call and look for one of two desirable outcomes.

1.) Generate instant income and hold on to the stock: Selling an option produces income that is immediately deposited into the option seller’s brokerage account. If shares trade below the strike price at expiration, you’ll pocket the instant income, and still hold on to the stock.

2.) Lock in a gain by selling the stock: If shares trade above the strike price when the option expires, you’ll keep the premium and pocket the gains from selling the shares you own at a higher price.

Now here’s how to utilize this strategy today and invest ahead of the expected record year for consumer electronics.

The company I’m looking at for this trade is Best Buy (NYSE: BBY).

Best Buy is the largest specialty retailer of consumer electronics in the United States. More than 70% of Americans are within 15 minutes of one of its 1,495 stores — making it a great play for cheap domestic oil and an excellent income trade with our covered call strategy.

Last week I recommended selling one BBY Jan 39 Call for around $1.20 for every 100 shares of BBY you purchase or own.

I suggest only entering the trade if the cost basis is less than $37, meaning when you subtract the premium you receive from selling the calls from the purchase price of the shares, it should come out to less than $37.

When I recommended the trade, shares of BBY were trading around $36.50. Call options with a strike price of $39, expiring in January, were trading around $1.20. This brings the cost basis to $35.30 ($36.50 – $1.20 premium).

Selling these calls will generate immediate income of about $120 (each contract controls 100 shares.) If you buy 100 shares of Best Buy at $36.50, it will cost you $3,650. But if you already own 100 shares of BBY, you’ll simply pocket the instant income.

So if shares of Best Buy trade for $39 or less on January 16th, we’d keep the $120 premium, earning a 3.3% return in just 32 days. That’s a 37.5% annualized return on our investment, and you’ll still own shares of BBY.

If BBY trades above $39 on January 16th, we’ll keep the $120 premium, and sell our 100 shares of BBY at $39 per share. That means we’d book a 6.8% gain from the stock. But combine that with the premium income we received and we’ll realize a profit of 10.1% (a 115% annualized return) in just over a month’s time. The only difference is that you won’t own the stock anymore.

In both scenarios we have the possibility of earning double-digit annualized returns, with very little risk.

Shares have rallied a bit since I recommended this trade, but as I mentioned above, as long as the cost basis of the trade is below $37 I recommend executing the covered call.

This is just one trade I’ve recommended to readers of my premium newsletter, Maximum Income. Since I began issuing trade recommendations in January 2013, we’ve been able to turn a profit on 78 out of 78 trades. I hold your hand throughout the whole process. In fact, twice a month, no matter what’s happening in the market, I issue a “Cash Collection Alert” and arm you with all the information you need to decide whether or not you should take action.

So rather than sit around and hope your holdings appreciate, covered calls put you in the driver’s seat. We’ve been able to earn annualized gains of 125%… 115%… 157%… even 212% with this strategy so far in Maximum Income. If you’re interested in learning more about how covered calls can help you collect these kinds of gains each month, I invite you to follow this link.