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Here's an option to profit from the stock market. Are you in?

By Terence Tan

Five Timeless Tips to Profiting Even in Today’s Uncertain Economy

No complete stock market investment strategy is complete without the right stock. Or so the ‘gurus’ and ‘experts’ say.

Most ‘experts’ preach buying the right stock to make a profit. But they make a massive assumption that you will be able to sell at the right price too.

Truth is, you only make money when a sale is made. Anything else is mere… paper profits.

However, there exists a lesser known financial instrument in the stock market – one that many tend to shun away from, for the fear of the unknown and because junky ‘gurus’ have tarnished its name.

But… you may not like it. Because it’s not popular.

Catching fish with Buffett… the old way?

You’ll find many hardworking investors out there, plying the trades of value investing. After all, it was made popular by the great Mr Warren Buffett himself, who turned Berkshire Hathaway into the best returning investment in the stock market… but very few have realized that his great methodology might just be ‘outdated’.

You see, with relevant information readily available to any investor, there is little separating Warren Buffett and the common man value investor today. Except one thing: the sheer size of his funds.

After personally surviving countless ‘battle scars’ in the stock market, I realized the truth: that people go to the stock market only to make money… and not own stocks.

And that truth changed the way I traded. And that truth changed the way I made money. And that truth changed the way hundreds of my graduates in Singapore, Malaysia and Vietnam have profited.

But I digress.

Yes, you are right. Owning a great company’s stock is important for the safety of your investment capital, but ask yourself this: “What good is that, if it is not actively generating an income for you?”

Because that’s the whole point we all invest… right?

What’s my option then?

The answer is, as earlier mentioned… Options – a lesser-known (with soiled reputation) tool in the stock market. Let me explain.

When you sell a Put Option in the stock market, the buyer of the Put Option pays the seller (you) for the right to sell shares at an agreed upon price by a specific time period.

Simply put: It means that we can get paid regardless if we end up buying the shares or not by the end of this specific time period with the Put Option.

Let’s simplify things through an example:

You have shortlisted Intel Corporation to add into your investment portfolio. The choices you would have are:

Choice 1. Buy Intel Stock @ $34.82 on 1st August 2016
Choice 2. Sell Intel 5th August $34.50 Put Option for $0.21 on 1st August 2016
(One option contract controls 100 shares so all profits and losses made will be in multiples of hundreds)

Choice 1:

This choice is simple, and quite frankly... self-explanatory.

You buy the stock, then you pray and hope that the prices go up so you can sell for a profit.

If it doesn’t go up, you wait. If it maintains, you wait. If it goes down, you wait.

You get the idea. It doesn't generate you a secondary income. But you get to own a great stock, which will pay you some measly dividends when the time comes.

If you have chosen to purchase Intel stock on 1st August 2016 for the price of $34.82, there is absolutely no promise nor certainty that profits can or will be made.

Choice 2:

You choose to sell the put option, which expires on 5th August. As long as Intel remains above $34.50 (the agreed price set on the put option), the option will then expire worthless upon expiry.

This means you seal the deal on your profits made up front.

How does it work?

If the stock price remains above $34.50, the buyer of the Put Option will have no incentive to exercise on their right to sell Intel shares for $34.50, because the market price is currently trading higher than that.

This means that the premiums collected for selling this Put Option ($0.21 per share or $21 per option contract) is certain upon the option expiry.

No stock was transacted nor purchased, but the profits were still being pocketed from the stock.

The selling of this Put Option on Intel can then be repeated weekly, because Chicago Board of Options Exchange (CBOE) made it possible.

A repeated motion of this for 52 weeks in a year for an average premium of $0.20 per week would ring the cash registers on your investment portfolio to the tune of $10.40…

That’s a cool 29.9% annualized returns on a great company, which dominates the business sector they operate in. Or in other words… a blue chip stock holding.

There is only one downside to this strategy. And that is the obligation to own the stock, should the buyer of the Put Option choose to exercise their right to sell their stock to the seller of the Put Option (you).

Which means… Yes. It is the same risk as Choice 1 – purchasing the stock back on August 1st 2016.

Except this time, for the very same ‘risk’, you are able to rake in cash – week after week after week after week.

Sure or not… it’s too good to be true.

You’re right. As with all things real, we have to ask ourselves… what if things go wrong and the stock prices drop?

As investors, we know that this is a very real situation and here’s what sets my graduates and I apart – we know the IMPossible Repair methodology, which allows us to:

  • Continue to sell more options with the ownership of the stock
  • Ensure that it can be disposed of in the quickest shortest time possible
  • Still make a positive net cash outcome for your portfolio

With the IMPossible Repair methodology, you will have the confidence to repair any trade that goes wrong. And more importantly, you will never have to hear the 2 most dreaded words: cut loss.

Being an option seller allows you to adopt a cash-in-hand investment philosophy, instead of the old adage of the buy-and-hold investment recipe (so hard sold and drilled into the minds of the public for way too long).

Want to turn the tide and start creating IMPossible results?

Imagine this:

You own a basket of pre-selected champion stocks, and you begin selling put options.

You build your investment portfolio like a cash gushing business, where customers (option buyers) are queuing up to hand over their cash to you.

You repeat this process of selling options, repairing when things go wrong.

And you never owned a share. At all.

Wouldn’t that be nice for a chance to turn the game against the tide? Wouldn’t it be nice to have confidence that you can win? Wouldn’t it be nice to finally be able to invest without any fear at all?

If you want to learn how to execute the above strategies (and more), do join us at our next Introductory Workshop where I can explain this to you in person. Register your interest here.

 
Terence Tan

Terence is a 6-times SEA Games Gold medalist in the Singapore Waterpolo Team, Chief Investment Strategist of Giants Learning Technologies, and the creator of the First and Only Income Investing Programme in Asia Pacific. For 13 years, he was a boutique fund manager, and began managing sums up to six figures, generating results for his clients via Stocks, Options, Index, Futures and Forex. Having to juggle work, family and national team commitments, he was propelled to create a formula that allows him to profit consistently while managing his responsibilities. He began personally coaching hundreds of like-minded income investors in Malaysia, Singapore and Vietnam, through the Income Mastery Programme. Since then, his record stands at 243 wins out of 245 Live Trades, and at a streak of 223 trades in a row (as at 23 June 2017), with the income investing community growing to over 1000 graduates joining him in income investing.