How can a quarterly “dividend” possibly pay 25 to 35% or more a quarter? Well, this proactive quarterly “dividend” does take a little more effort than just landing in your brokerage account, but not a whole lot more, especially given the opportunity.
The dividend landing in your brokerage account method works pretty well IF you have an investment account with several million dollars in it just for collecting stock dividends.
Let’s do the math on a $2,000,000 investment account: 2.00% of $2,000,000 means $40,000 a year paid as quarterly dividends. You can’t live on it, but you could take a pretty good trip.
But what if you could earn 20% on a $100,000 investment account (or money allocated to proactive investing) FOUR times a year? It sounds kind of embarrassingly crazy in this day of 2% returns, but that would be an 80% return a year. That’s twice as much income as the example above, $80,000 annually, with only 5% as much capital.
Now do I have your attention?
You may be thinking, that buying and holding the S&P would be less risky than proactive investing over a few days… Well, the pain that comes from buy and hold market corrections certainly lasts longer than a 1 to 4 day option earnings strategy, but keep reading.
What’s this strategy that requires a little more work but pays WAY more than regular dividends using less capital? In this post I’ll answer that question, tell you why it’s most lucrative during earnings season, and I’ll show you an example.
Additionally, I’m hosting a free webinar teaching this strategy and you can register here if you prefer webinar format.
First, this “proactive dividend”, as I like to call it, is using limited risk option strategies during stock earnings season.
Why is earnings season specifically such a great time for this strategy? Because you capitalize on a method that uses stock options, and just before earnings are released a company’s options are more expensive due to the uncertainty of earnings.
This may sound counter intuitive, but remember that more expensive is a bad thing when you’re buying…but it’s a very good thing when you’re selling; you do both in this strategy.
At this point, you may also be wisely thinking “But wait, isn’t it risky to buy a specific stock just before earnings because there’s more uncertainty leading to greater unpredictability?
And the answer is “Yes!” But there’s a solution to limit risk; you both buy an option AND sell an option because this protects you on the downside…which means your risk is limited. And who doesn’t want limited risk, especially after surviving the brutal stock market corrections of 2001 and 2008?
Another way risk is limited with this strategy is by having a shorter time frame…
Typical earnings trades only last 1 to 4 days, so your money is in a position for a short time. (You may have heard that short term investing is riskier than long term investing, but isn’t there more certainty in 1 to 4 days than there is over the next year?)
A third way risk is reduced is by the fact that you are able to reach your profit objective with a fraction of the cost of buying a stock outright by using options…
With Apple over $500 and Netflix over $400, this is a huge factor for making money from these large successful companies.
At this point I have to say this: WARNING! It’s super important to remember that just buying or selling an option outright can have unlimited risk, so you have to know what you’re doing!!! Please don’t decide to jump into this if you don’t understand option basics and know the ways that options can have risk just as you would the stock market, the real estate market or any other place you invest!
Will every options earnings trade be a winner?
Nothing is right 100% of the time. You do need to be able to find the highest probability trades, or use a service that gives them to you. But with a high probability system, you can have a very high level of winners. For example, during last earnings season, of the 13 trades I sent members, 1 was a loser, so over 92% were winners.
Now, back to this earnings option strategy…
Let me show you just how it works. There are several methods to capture profits from these higher option premiums during earnings. Each method works best based on certain circumstances.
I don’t like to spend a lot of time watching trades all day, so the method I use and teach most often involves almost no attention once the trade is placed.
Basically, it’s just 4 steps; you buy 2 options and you sell 2 options. Now, this may sound like a lot to do, but once you understand the method, you just use the same method over each earnings season.
So, it’s really pretty simple.
Here’s a trade I sent to members last month ahead of Whole Foods Market (WFM) announced their earnings:
Buy 1 WFM $55.50 Call -$210
Sell 1 WFM $58.50 Call $100
Net Cost $110
Buy WFM $55.50 Put $197
Sell WFM $52.50 Put -$87
Net Cost $110
Total Net Cost $220
Profit $300 Spread ($58.50-55.50)
Less Trade Cost -$220
Net Profit $80
Bottom Line: This earnings option strategy made $80 per contract before very small commissions. The maximum potential loss was $220 per contract, which is the total amount of capital in the trade per contract.
This trade was in place 2 days requiring almost no attention.
Example of an $1100 Investment in this real trade sent to members last month:
$1100/220= 5 Contracts x $80 Profit per Contract= $4000 Total Profit
$400/$1100 = 36% Return
Time: Entire trade – half an hour
Worth your time and money? You make the call. The great thing is that earnings season comes 4 times a year. And it always means opportunity. Just rinse and repeat.
If you want to learn more about my earnings option strategy, you’ll want to attend this free one hour webinar where I’ll show you more about this strategy to make money during earnings season. Register by clicking here.