The market can be fickle when it comes to generating weekly income.
That is a kind way to describe how a bull market can turn vicious and hit your capital — the capital you are using to generate income — in the proverbial heartbeat.
Protecting that capital is the key to generating consistent weekly income. That does not mean you run for cover into low-yielding equities or lower- yielding bonds. Do the opposite — embrace the market — just do it a couple of days at a time.
Not swing trading. Not buying stocks. Especially not buying options.
Selling options — selling put options and on stocks you own, selling covered calls.
Pull in 30% or more returns
The best way to protect capital, and realize potential returns as high as 30% a year is with a strategy built around weekly options.
Let me repeat, not buying them, but selling them, in what I call “The Flip.”
When you sell a weekly put, you collect cash and sell risk. And if you hit your target — the put expires worthless — you only pay commissions when you sell that put.
I do this every week, typically selling a put option on Wednesdays, limiting my exposure to the market to less than three days.
More Ways to Generate Weekly Income
There are now more than 450 stocks, ETFs and indices with weekly puts and calls. As you might guess, speculators love the opportunities to double their money or more while at the same time paying little to nothing for the time value of an option. Good for them.
But better for those of us interested in generating weekly income. Weekly options offer one of the lowest-risk ways to generate consistent weekly income over time.
One recent position speaks to the efficiency and profitability of selling weeklies. Recently on a Wednesday we sold the medical device and diagnostics maker Exact Sciences (NASDAQ: EXAS) weekly put options, getting $57 a contract.
Sounds like too small a profit for all of you super-smart traders?
Two days later the puts expired worthless. The return on the capital was 0.84%. Tiny, eh?
Do it weekly throughout the year and your return is 40.1%. Not so tiny.
What looks attractive now …
To make this strategy work you need low commissions and an account of at least $15,000. And you need to work it — you will need to put on positions most if not all the weeks of the year.
But this strategy can potentially generate returns of 20% to 30% a year. I target 15% to 18% when discussing this approach in seminars since many people do not or will not put on positions every week.
As I mentioned earlier, I prefer selling weeklies on Wednesday although recently I sold payment processor Square Inc. (NASDAQ: SQ) puts on Monday for $102 or 1.2% for 5 days. Those produced an annualized return of over 50%.
About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. Michael has never looked back. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business and as the writer and editor of Hedge Fund Investing.
Michael has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio, meaning his trades produce the expected income 98% of the time. No one’s perfect.