Beat the Bear! Here’s The Safest Path to Income in Today’s Dangerous Market
Yikes. What a terrible start to 2016.
China’s economic and currency woes, plunging oil prices, rising interest rates, terrorism fears, a migrant crisis in Europe, the unraveling of oil-dependent Russia, slowing emerging market growth, declining corporate earnings — it has all added up to wild intraday swings in global markets.
In this era of 1% CDs and extraordinary volatility, where can yield-hungry investors go for safe and steady income?
The conventional sources of income — bonds and dividend-paying equities such as utility stocks — all face a highly uncertain year.
But income investors needn’t despair. Here, we reveal an investment strategy that can generate robust streams of income in bull, bear and even flat markets. Multiple dangers lurking this year make this method all the more compelling.
Let’s face it: Income investors got some terrible news this month. Goldman Sachs released a new study in January that showed dividend growth in 2015 had hit a 65-year low.
According to the investment-banking firm, dividend growth last year declined 29.4% on a year-over-year basis, with the last three months alone posting a decline of 70%.
A key factor behind the drop was the U.S. Federal Reserve’s increase of interest rates in December, the first rate boost since the Fed reduced rates to nearly zero during the nadir of the 2008 financial crisis.
As higher rates become available in other asset classes, dividend-paying stocks lose their appeal from a risk-to-reward standpoint.
Even worse, traditional sources of dividend income — utility stocks — are risker than they’ve been in quite some time. Rate-sensitive investments such as utility stocks can get hammered during periods of rising rates. Utilities must borrow large sums of money for capital expenditures. As rates rise, their increasing cost of capital weighs on share prices.
And what about bonds? They’re supposed to serve as the ballast in your portfolio, steadying the ship during the sort of market storms we’re seeing today. But in a rising interest rate environment, these fixed-income investments can rock the boat. Existing bonds continue to pay the rate stated when they were issued, so when interest rates rise, prices of existing bonds go down.
Likewise, the news has been bleak for master limited partnerships (MLPs), which once were all the rage with income investors. Already clobbered by falling oil prices, some MLPs carry high debt and suffer when they need to refinance in a higher-rate environment.
But even in these turbulent conditions, a source of consistent and safe income exists, if you know where to look.
The Power of Credit Spreads
We’re talking about a proven strategy that’s too often ignored: credit spreads. With this simple yet powerful options strategy, you can bolster your income portfolio to secure the lifestyle and retirement of your dreams. For a free video presentation that provides easy to follow details, click here now.
With widely followed analysts this month predicting a cataclysmic market in 2016, it’s an opportune time to consider this options strategy for generating income while simultaneously hedging your portfolio.
Now you may have heard that trading options is risky. And that’s true… if you’re an options buyer.
But if you want dependable income with limited downside, that’s not the best way to trade options. You should sell them. Most option buyers are speculators who place high-risk trades, hoping for a big payout. And that’s why they strike out most of the time.
But when you sell options, the odds of winning tilt in your favor. Because every time the buyers strike out, you keep the money. With credit spreads, you get the opportunity to cash in not only whether the overall market is up or down, but even when individual stocks show a consistent downturn.
In this video presentation, you’ll discover how credit spreads are a low-risk options strategy for generating monthly income even in down markets — all without you having to continually monitor your brokerage account.
Maybe you’re familiar with something called a “put,” which is an option contract giving the buyer the right, but not the obligation, to sell a specified amount of an underlying stock at a set price within a specified time.
The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.
A put is a bet that the price of the underlying stock will depreciate relative to the strike price. This is the opposite of a call option, which gives the holder the right to buy shares at a specific price.
But we’re suggesting a strategy that’s far better: Instead of only selling a put contract, you trade a credit spread instead.
Credit spreads allow you actually actually receive cash (a net credit) for executing them, while also protecting yourself in an ironclad way. This credit to your trading account is why such options spreads are called “credit spreads.”
With a credit spread, you sell one put contract… and you buy another one at a lower price. You pocket the difference between the two contracts. And that money is deposited into your account immediately.
It’s okay if this sounds a little confusing. These trades are a bit like riding a bike, once you do it yourself once, it’s easily repeatable.
Learn more about how this low risk strategy can produce consistent income regardless of market conditions.
A Safety Net That Limits Losses
The beauty of a credit spread is that the two options form a “safety net” that limits any loss.
A credit spread puts a limit to an otherwise unlimited loss potential, which is crucial in these times, as global markets subject investors to nerve-wracking roller coaster rides.
In this easy to follow video, you’ll learn how to execute a credit spread, step-by-step. It’s as if you’re looking over the shoulder of an experienced options trader.
This strategy is particularly effective in the volatile conditions we’re now facing, with many analysts calling for an extended bear market.
Why? Well, as we’ve just explained, a credit spread is a type of options trade that creates income by selling options.
And in today’s bearish climate, fear pushes up the volatility index rise, which in turn boosts the options premium. Higher options premiums mean that options traders who sell options can generate more income on a monthly basis. So, if you’re looking for a steady source of income with limited downside in a volatile environment, you should sell credit spreads.
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