The Easy Way to Earn Double Digit Returns
Over the past 90 years, the S&P 500 has delivered an average annual return of just under 10%. Of course, some years have been much better, while others have been far worse.
On a compounded basis, a 10% annual return would double your money in a little over seven years. Over 25 years of compounding, you’d end up with 10 times your original investment.
That’s why professional investors are so patient. They know the occasional stock market correction will not prevent them from achieving their long-term goals.
But what if I told you there is an easier way to earn 10% profits in the stock market? A method that relies very little on growth and instead focuses on income.
Here’s how it works.
To show you how this method works, I’ll use energy conglomerate The Williams Companies (NYSE: WMB) as an example. I owned WMB in one of the trading services I manage and wanted to squeeze a little more return out of it.
Three months ago, WMB was trading around $26. The price of oil was below $55 and the stock market was just starting to recover from a third-quarter correction that drove the S&P down 20%.
Energy stocks got hit particularly hard during the stock market’s year-end fade. From its August high above $32 to its December low below $21, Williams lost more than a third of its value in just four months.
However, by the third week of January, WMB had already recovered half that loss and had established a lot of upside momentum. That’s when I decided to make my move.
Adding Fuel to the Fire
On January 25, I sold a covered call against my WMB stock that expires in August at a strike price of $28 for a premium of $1.22 per share. That works out to a 4.3% options yield over seven months, or 7.5% on an annualized basis.
In addition, I am entitled to receive any cash dividends paid by Williams while I am still the shareholder of record.
Williams pays a quarterly dividend of 38 cents, which works out to a forward annual dividend yield of 5.3%. Added to my options yield, you already have an annualized total return of almost 13%.
But wait… there’s more! If WMB ends up getting called away in August for $28, that $2 gain will add another 7.7% to our return. That works out to another 13% of profit on an annualized basis.
In total, the annualized return on this one trade could work out to 26%, if WMB is trading at or above $28 by the expiration date in August.
Hold the Call
But let’s say WMB drops back down to $26 by August and our stock is not called away. In that case, we still have realized a 13% annualized gain just from the dividends and options premium.
Also, we can write another covered call against our WMB stock and repeat the process all over again. Keep the dividends, pocket the options premium, and wait to see if the stock gets called away from us.
Quite frankly, I hope the stock does not get called away from me. I’d be perfectly happy collecting 5%+ annual dividends and collecting 7%+ annualized options premiums from here to eternity.
And in case you’re wondering, at 13% your money doubles every six years, and only takes 19 years to increase 1,000%.
But you don’t have to wait that long, to make big money. My colleague Amber Hestla, chief investment strategist at Profitable Trading, has found a way to generate high income… on demand.
If you’re hunting outsized yields, but hate waiting months and months to get them, you’re going to love Amber’s investment advice.
Amber has devised a money-making system that she calls “dividends on demand.” It’s exactly like scheduling a dividend payment whenever you want. There’s no application form and no waiting period. What to learn her secrets? Click here for all the details.