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My dad loves casinos. But they’re illegal in Brazil.

So whenever he comes to visit me here in Florida, I take him to a casino. But we always have to come up with some sort of “cover-up” operation to make sure my mom never finds out.

She simply hates casinos because my dad always loses money.

For my dad, casinos are a lot of fun. While I respect that, I also can’t blame my mom for hating them. After all, the odds you will make money are very low.

That’s also why I never go to casinos, unless I’m with my dad.

I follow that same philosophy of avoiding low-odds bets in the financial markets as well.

Take the options market, for example. Most people think options are extremely risky. But the truth is, that largely depends on what kind of strategy you use.

There’s one particular option strategy that puts the odds of winning in your favor. Instead of betting against the house, you get to be the house. And even better, you can collect some incredible income in the process. Let me explain…

Putting the Odds of Winning in Your Favor

When you buy a put option, you’re buying the right (not the obligation) to sell a stock at a set price (called the “strike price”) by a certain date. You’re basically betting the stock will fall.

Stock options have a predetermined shelf life. They expire in a few months or, at best, a year. So when you buy an option, you have to be right about the direction of the stock.

But you also have to be right on timing. Your trading idea has to be proven right before the option expires in a matter of months. This is very difficult for most investors.

And that’s why most options expire worthless. In general, those who buy options have very low odds of winning.

The ones who make money are the investors on the other side of the trade, the ones who are selling those options. And that’s the strategy I want to tell you about today.

When you sell options, you don’t have to be exactly right about the direction or timing of a stock’s movement. Many factors work in your favor. If the shares go nowhere, for example, you’ll still profit.

When you sell a put option, for example, you agree to buy someone else’s shares of a particular stock for a set price over a limited period of time. In return for agreeing to buy the stock, you receive a cash premium from the other party. That’s how you generate income from options.

Let me walk you through an opportunity I see in today’s market. I will show you why selling puts the right way is a win-win situation.

How to Triple Your Dividends

Intel (INTC), the giant chip-maker, is a great buy today, as I mentioned in a previous article. So let’s say you’re willing to buy Intel today at market price.

But instead of buying the stock, you can generate some additional income by selling puts.

Intel is currently trading around $21.70. You’ll sell the January 21 put option, which will expire in about three months. The option’s current price is $0.75. But since one option contract covers 100 shares, you’ll collect $75 ($0.75 x 100) for every contract you sell.

Here’s what you would tell your broker: sell, to open uncovered, the INTC Jan 2013 21 put (INTC130119P00021000) for about $0.75.

The buyer of this option will have the right to sell the stock to you for $21 (the strike price) by the expiration date. Of course, he will only exercise his option if the stock trades below that price. He has no reason to sell you the stock if he can get more in the open market.
As a result, as long as shares of Intel trade for more than $21 by the expiration date, you will book the entire premium with no obligation to buy shares. That’s how you get $75 in income.

This may not seem like much. But the truth is this is an amazing strategy. Here’s why…

Intel recently paid a quarterly dividend of $0.225. In other words, if you had 100 shares of Intel, you would receive a payment of $22.50. By selling options, you can collect $75 instead. You are able to collect an “instant dividend” more than three times higher than the regular dividend … without owning the stock.

That’s a yield of 3.6% ($0.75/$21) in just three months. If you sell three other put options during the year, you can collect an annual yield of about 14%.

What’s the catch?

Well, if Intel is trading below $21 at the expiration date, the buyer of the option will exercise it. You’ll have to buy shares of Intel for $21 (the strike price), regardless of the market price.

But that’s ok. Intel is already a bargain at today’s price. At $21, Intel would be trading at a P/E ratio of 8.9, which is extremely low. In other words, if the buyer of the put option exercises it, you’ll buy a great company on the cheap. That’s the worst that can happen.

Intel also currently pays a dividend yield of 4%. Over the last five years, it has grown its dividends at a compound annual growth rate of 14.6%. At that pace, it will nearly double its dividend in the next five years. So you could be collecting a yield of 8% by 2017. In other words, if you’re looking for stable income, Intel is a great addition to your portfolio.

That’s why selling put options is one of the best ways to generate income today. It puts the odds of making money extremely in your favor.

Regards,

Evaldo Albuquerque

P.S. The Fed has killed traditional income sources with its near-zero interest rate policy, and its money-printing is spurring inflation higher. That’s why finding new, significant sources of income is more important than ever. Selling puts is a great way to do that, but it’s not the only one. I’ve put together a new report to show you how to tell the Fed to “Screw Off!” with new strategies to secure the income you need. Click here to get your copy today, completely free!

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