Cashing In on Bull-Call Spreads Month After Month
When you’ve been in the financial services industry for as long as I have as a 33-year veteran, you’ve seen the variety of ways and methods by which strategists bring new money-making models to the investing universe and how very few live up to their billing.
This view especially holds true in the trading of options. Most of us have heard or know that 90% of all options trades expire worthless. This is true, primarily because emotional greed controls the majority of novice options traders that buy short-term out-of-the-money puts and calls that simply run out of time before the underlying stock makes the decisive move necessary to generate a profit.
Smart money that trades options does it in two ways. Smart investors buy more than enough time when purchasing long call positions for the expected move in the underlying stock to materialize, and they the sell short-term option premium back to the market to collect immediate income. If done at the same time or within a short period, this strategy can be very lucrative on a repeat basis. The strategy is called a bull-call spread and is one of the more successful trading strategies used by trading pros when trying to profit from stocks that trade in excess of $100 per share that would typically tie up a lot of capital.
It is not new information that the stocks propelling the stock market to new all-time highs are those heavily weighted holdings in the indexes, most of which trade well above $100. When looking at the latest rally, stocks like Goldman Sachs (GS) at $246, Apple Inc. (AAPL) at $133, IBM Inc. (IBM) at $179, Boeing (BA) at $168, Netflix (NFLX) at $143, United Healthcare (UNH) at $162, Broadcom (AVGO) at $207, United Rentals (URI) at $128 and other similar widely held institutional darlings are bearing the torch of the current uptrend.
In my most recently launched trading advisory, Instant Income Trader, I take full advantage of this trading landscape by recommending bull-call spreads on some of these very names and many others that are busting out to new all-time highs on heavy fund buying. It is called “getting in the way of the market” because money flow from large funds, exchange-traded funds (ETFs), pensions and hedge funds dominate price action in the big liquid names that carry the highest level of trust.
Once I identify a name that has a strong fundamental and technical uptrend in place, I’ll recommend a deep in-the-money Long-Term Equity Anticipation Security (LEAP), which is basically a call option contract with a one-year or longer expiration. I will then recommend selling a short-term out-of-the-money call option against the long-dated LEAP to capture some short-term income over the next one or two months. If the mechanics of the trade work according to plan, a typical bull-call spread trade can generate anywhere from 15%-35% returns over a 60-day period.
If we can take that same dollar and turn it into five to six trades per year, as the system is designed to do, the overall potential returns are heady, to say the least. What is most important is to gain an understanding of how to put this strategy to work in a manner where the risks are well understood, the power of leverage from options themselves is utilized properly and how best to capture income on a steady basis so that greed doesn’t prevent consistent success.
All these salient points and more are going to be at one’s fingertips this Thursday when I host a free Teleforum to outline the virtues of bull-call spread trades utilizing Instant Income Trader. I put out weekly recommendations, update current positions and provide trading parameters in a simple way. All one needs to put this system in place is a cup of coffee and 10 minutes per week. It is that easy and I invite one and all to join me in my Teleforum to put Instant Income Trader to work right away and start paying yourself like a Wall Street pro. If you want to learn further about Instant Income Trader right now, click here.
In case you missed it, I encourage you to read my e-letter from last week about the money-making strategies employed by private equity firms.
