But I’ve been very successful in this low-interest-rate environment. I’ve closed 85 straight winning trades in my Income Trader newsletter since its inception in February 2013. And I’m not talking about single-digit gains either. The average trade has provided an annualized return of 53%.

#-ad_banner-#Before I get into how I was able to do this, I want to look at the risks income investors face today.

I’m sure most traders are aware that when the Fed eventually raises rates, fixed-income investments like bonds will drop in value. But I’m not sure many understand how much money they will actually lose on their investments.

Many analysts expect the Fed to begin raising short-term rates sometime this year. By next summer, the market is predicting they could reach 1%, according to the rate implied by Fed funds futures. 

A 1% increase doesn’t sound like much, but this small move could result in very large losses. Investors earning 2.4% in long-term Treasuries could see 17.6% of their principal disappear by next summer. That’s more than seven years’ worth of interest payments at the current yield. 

I believe some income investors are taking on more risk than they realize and that the risks of owning long-term bonds outweigh the potential returns.

The table below shows the size of the potential losses for some popular bond funds based on data provided by iShares, the ETF provider. 

Now, there is hope! There is one type of fixed-income fund that should avoid significant losses when rates rise — money market funds, and they offer an average yield of 0.02%. At that rate of return, it will take about 3,600 years for $1,000 to grow to $2,000. When rates rise to 1%, money market funds will allow investors to double their money in a relatively shorter time frame — just 72 years.

I studied the risks and problems associated with traditional income investments and knew I needed to find an alternative. 

Money market funds will not suffer large losses because they invest only in short-term securities. At maturity, a fixed-income investment repays the principal balance to an investor. Longer maturities carry the risk of a larger loss of principal when rates rise. The average maturity of the assets held in a money market fund is about 43 days. Because they mature so quickly, they will not incur a large loss of principal.

I follow this same idea with my put selling strategy, and with great success. Some income traders worry that selling options is risky, but I have done it with a 100% success rate for the past two years, generating double-digit annualized returns.

If you’re not familiar with this strategy, that’s OK. I have put together an eight-minute training video that walks you through the strategy step by step using examples of my actual trades. It’s one of the clearest explanations of options selling I’ve ever seen published. One of my readers actually described my strategy as “easy as pie.” Click here to watch it now. 

The average holding period of my closed trades has been about two months. By keeping the investment period short, I minimize risk similar to the way a money market fund does. I am not eliminating risk, of course, because no investment is completely risk-free, not even a money market fund.

In addition to protecting capital by making short-term investments, my strategy actually benefits from rising rates. 

Options prices are based on a number of factors, one of which is short-term interest rates. Without breaking down the Nobel Prize-winning Black-Scholes model for calculating the price of an option, for our purposes, we can be content to know that higher interest rates mean higher option premiums, which benefit us as sellers.

In addition to having a direct impact on option prices, higher rates could have a larger and indirect impact on stock prices. Higher rates are expected to be at least slightly bearish for stocks. When investors are bearish, we usually see stock market volatility increase. Volatility is another factor that impacts option prices, and higher volatility should result in higher premiums. 

So, all in all, I believe higher interest rates will allow me to generate even bigger returns with my put selling strategy.

There are no guarantees in the investment world. I don’t know when the Fed will raise interest rates, and I honestly don’t believe it does either right now. But I am confident that the put selling strategy I have detailed every week for more than two years in my Income Trader newsletter will be a strategy that does well in any interest rate environment.

If you want to learn more, I urge you to take just eight minutes to watch my free webinar, How I’ve Sold Options With 100% Success. In addition to a breakdown of my process, you’ll learn how you could start to make anywhere from $45 to $1,300 this week. Click here to watch now.

This article originally appeared on ProfitableTrading.com: Warning: The Great Risk Income Investors Don’t Realize​