Editor’s Note: Here at StreetAuthority we occasionally like to feature one of our “Hall of Fame” issues to readers as a reminder of some of the classic investing advice and analysis our experts have offered over the years. 

What follows is an interview I did with options expert Michael Vodicka back in October of last year. Keep in mind, some of the numbers and dates referenced may be different now, but the wisdom still holds true. I hope you enjoy.

StreetAuthority Daily: Before we get to the details of your strategy, let’s start off by first telling readers a little bit about you…

Mike: Sure. I like to call myself a “reformed day trader.” By that I mean I started my career as a day trader at a multibillion-dollar trading firm.

#-ad_banner-#I saw lots of day traders taking huge risks and making big gambles on market-moving news with their money. They would win big one day, only to lose it all the next.

I learned a valuable lesson: trading is no quick path to riches.

After spending years fully entrenched in the markets and learning from the sharpest minds in the business, I finally decided that I wanted no part of that game.

I found myself at a crossroads. I had loved the market ever since joining the stock market club in sixth grade. But it was clear that my relationship with the market needed to evolve.

Transitioning out of day trading was one of the hardest things I’ve ever had to do. But one of my favorite sayings in life is “winners find a way to win.”

That’s when I decided to seek out the Wall Street veterans. The ones who avoided risk instead of chasing it. The ones who made money consistently day in and day out.

These traders did not try to time the market. Instead, they used a little-known income strategy to consistently collect steady cash payments no matter what the market was doing. Eventually I walked away from the craziness of the trading world and struck out on my own.

StreetAuthority Daily: I’ll ask you more about the strategy you referred to in a moment. But first, tell us why you’re pounding the table about it right now?

Mike: It’s very simple. Interest rates are at a record lows across the globe. In the U.S., the average S&P 500 stock yields about 2%. The iShares 10-20 Year Treasury Bond (NYSE: TLH) is yielding under 2%, close to an all-time low. The average investment-grade corporate bond fares little better.

CDs and savings accounts offer virtually no return either. In this environment, investors are desperate for strategies that will help them generate consistent and reliable income.

Oftentimes, that means investors either settle for the paltry yields of traditional investments like the ones I mentioned — or venture out further along what’s called the “risk curve.” This means they seek out riskier investments in order to “chase yield” — like buying “junk” bonds instead of investment-grade bonds or shares of companies that yield 8%, 9%… 10% or more but are more often than not on shaky financial ground, instead of the usual suspects like utilities or banks.

It doesn’t have to be that way. For the past 17 months or so, my Income Multiplier subscribers and I have been able to safely and consistently generate income no matter what the broader market is up to.

StreetAuthority Daily: So tell us a little more about this “safe money secret” you learned from Wall Street pros to generate income from the market.

Mike: Here’s how it works…

First, I look for proven market “signals” that alert me to a great income opportunity on S&P 500 stocks. These signals help me uncover the most stable and most promising stocks in the S&P 500 — the cream of the crop. That’s Step 1.

Second, I use one of Wall Street’s best kept secrets — a powerful and reliable income-generating strategy I learned from the veterans I worked with during my day-trading years — to safely play these signals. That’s Step 2.

Third, I place my trade and instantly collect my cash. As soon as these trades are placed, cash is deposited directly into my brokerage account.

It’s that simple.

StreetAuthority Daily: Sounds interesting. But I’m going to give away a just little bit of the mystery here and go ahead and tell our readers that this has to do with options. We’ve preached the value of options before to StreetAuthority readers — and I know plenty of our readers see the value. But some may still be skeptical. Why do you think that is?

Mike: Good question. I mentioned in a recent Daily Dividends essay that there was a 2011 survey by TD Ameritrade that found that more than three-quarters of “buy and hold” investors have never bought or sold stock options.

A third of the respondents said they were “Too risky.” A quarter of them said they “don’t need them,” and another 23% admitted they “don’t know how they work.”

Those first two responses are two of the biggest misconceptions about options. And the third is easily solvable.

First, the idea that all options are risky is just ridiculous. It’s true that options buyers lose money on more than 70% of the trades they make.

But that’s not what we do. We sell them.

Most individual investors who buy options don’t know what they’re doing. They’re gambling. I don’t know about you, but I want to be on the other side of that bet.

When you sell options, that’s exactly what you’re doing. You’re on the other side of the trade. You get to keep the cash every time an options buyer loses money. That’s why selling options is one of the safest ways you can make steady income in the market.

If you’re selling options properly, then it follows that you should be able to make money on more than 70% of your trades. And at the expense of sounding immodest, I’m proud to say we’ve done even better than that in Income Multiplier. We’re currently 60-for-60 on winning income trades — without posting a single loss — and it’s all thanks to the “safe money” criteria I use to make our trades.

StreetAuthority Daily: There’s another benefit to selling put options that I think is important — especially right now. As you know, the markets have taken a turn recently. The S&P 500 is down about 5% since July 20… volatility is up… and global worries about China among other things have investors reluctant to tie their money up in new positions. But looking at the table of some of your closed trades, it looks like you and your followers have managed to get in and out of trades in just a few short months — sometimes in a matter of weeks.

Mike: Yeah that’s the beauty of selling put options. You don’t sit around and wait to get paid. It’s delivered instantly. Take Verizon, for example. The stock yields about 5% and I consider it one of the safer bets out there for buy-and-hold investors. But I’m not interested in waiting to earn 5% on my money. By selling puts on the stock, we were able to earn 5.4% on our capital the first time around — and we did it in 34 days.

Think about that. We captured an entire year’s worth of dividends in that time. Not only that, but we turned right around and repeated the process again. We’ve done this many times for well-known stocks like Verizon, Starbucks, IBM and more.

Now, sure, some of the returns in the table are small amounts in percentage terms (and we’ve made plenty of other trades that have returned more), but we did it in just a few days. That makes our annualized gains look huge. So theoretically we could replicate this trade again and again. In fact, we have — to great success.

StreetAuthority Daily: Here’s a common question we’ve received from readers about options… How much money do you need to get started?

Mike: Well, the short answer is… it depends. Most brokerage firms will require a cash position equal to 20% of the value of buying 100 shares at the strike price of the underlying stock.

So for example, if you initiate a trade selling Verizon puts with a strike price of $42, most brokerage firms would have a capital requirement of around 20% to buy 100 shares. Buying 100 shares would cost $4,200, so the 20% capital requirement would come out to $840.

If shares fell below the $42 strike price before they expire in December, you would then need $4,200 in available funds to purchase 100 shares. Now, some of my subscribers prefer to sell “cash-covered puts,” meaning they maintain the full cash value required to purchase 100 shares of any particular options trade — just in case the trade goes against us and we’re required to purchase the shares outright.

But with Verizon currently trading at about $46 right now, my systems show that it’s a pretty good bet that the stock won’t fall to this level by the time the option expires in December. That’s why we only make trades on stocks we wouldn’t mind owning if they were assigned to us. Because worst-case scenario: We end up with 100 shares of a pretty solid company in our portfolio, and we can still make trades on it to earn extra income.

Remember: We only sell puts with more than a 70% chance of expiring worthless in Income Multiplier. That means at any given time we have a 7-in-10 chance of simply collecting our income upfront and then walking away after the trade expires. That’s a better win-rate than most buy-and-hold investors manage, and we’ve done even better than that in my service.

StreetAuthority Daily: Any final thoughts for our readers?

Mike: If there’s one thing I’d like for our readers to take away, it’s this…

I know a lot of investors probably feel up against it these days, especially when it comes to generating income. Just as I mentioned how I found myself at a crossroads a few years ago, I’m sure a lot of our readers may feel the same way. But I had a choice: either stick to the same methods of investing I had practiced for years — or evolve. Our readers have the same choice: They can blame the Fed, Wall Street, politicians in Washington — whatever — for low interest rates and limited income opportunities for investors, or they can choose to evolve and find a way to win. I believe my “safe income” strategy of selling put options is part of the answer.

StreetAuthority Daily: That’s all I have for today. I’d like to thank Mike for joining me for this interview in StreetAuthority and also to let you know that if you have any more questions for Mike, he will be available to answer. Remember, we can’t offer individual investing advice, but we’re happy to answer any and all questions regarding the basics of options, Mike’s track record or anything else you have in mind.

I’ve also arranged with our publisher to keep Mike’s latest report up on our web servers for an extra few days for any readers who haven’t had the chance to check it out yet. If you decide to join and trade along with Mike and his Income Multiplier readers, you can visit this link.