Over the last few weeks, we’ve been discussing the “cash codes” here in The Rich Investor.
If you’ve read the articles, you would know that the cash codes represent put-option contracts that one can sell to other speculators. It’s a way for the buyer to take a bearish directional wager on the underlying stock.
It is a limited-risk, unlimited-reward type of investment in which the option buyer must pay an upfront fee to the option seller.
The upfront fee, known as the “premium,” goes right into the pocket of the option seller. It is a non-refundable infusion of cash that never has to be given back, regardless of where the stock may trade.
I’ve shown that, over time, these infusions of cash can actually be a life-long money-making strategy for put-option sellers.
Why? Because options contracts expire. And most of them expire with no value, leaving the put-option buyer sad and the put-option seller happy.
The only way an option buyer can win, is if they can turn around and sell the option they just bought to someone else for a higher premium. This will only happen if the stock actually falls in price.
Unfortunately for the buyer, many are either wrong in their directional assessment, or they just ran out of time (because the option expiration date came).
When option contracts expire at a high rate like that, option sellers are the big winners.
How Does it Work?
Let’s say a stock is trading at $100 per share.
A put-option buyer thinks this stock will fall below $80 in the next three months. So they buy a put option contract with an $80 “strike price” that will only be profitable if the stock actually falls to $80 or lower within that time frame.
Like 95% of the put-option speculators out there, they will pick an unattainable target price in that short time span.
If the stock finishes at any price between $80 or higher at the expiration date, that put option contract will expire with no value and the buyer loses 100% of their investment.
But let’s say the stock did fall to $80.
It would be a real bummer because the stock actually fell (just like the speculator thought), but it just didn’t fall far enough. It had to fall below $80 in order to be profitable.
As mentioned in an article several weeks ago, the secret I’ve found is that most speculators will be wrong in not only their directional assessment, but wrong in their timing, as well.
Even if the stock falls to $70 a week later, it would be too late – because the option already expired. Timing can be a real pain.
It’s just too hard to pick the correct direction, the magnitude of that direction, and the timing of that move, all in the same trade. It’s the reason why 95% of put-option buyers lose.
And it’s the reason why I (and my Instant Income Alert readers) sell put options, because we can gain up to 95% win rates.
Don’t Miss Out!
Taking advantage of those speculators has been a boon for my Instant Income Alert members.
We’ve been able to pinpoint numerous opportunities where the odds are very heavily skewed in our favor for a stock to not reach the destination target in the time allotted.
And what happens if the stock does reach the destination “strike price” target?
Well, we get to follow through on our promise to buy that stock at a really attractive price.
What stocks would you like to buy really cheaply if you had the chance? Do you have your wish list? If not, you should get a move on, because you’re missing out on great opportunities.
My Three Best Cash Codes Right Now
Right now, here are three of my favorites (not official trades!):
- Walmart (WMT): a great company and the largest physical retailer on the planet.
They pay a nice dividend that’s been growing for 46 years straight.
The stock is currently near $115 per share, and if $80 is an attractive buy-in price, the January 2020 $80 put options (cash codes) is paying out roughly $25 for each contract.
That’s a 31.8% discount to its current stock price.
- Clorox (CLX): another great dividend stock with 42 years of rising payouts. A company that sells practically every household item you could ever need.
The stock is currently near $162 per share, and if $110 is an attractive buy-in price, the January 2020 $110 put options (cash codes) is paying out roughly $30 for each contract.
That’s a 32.1% discount to its current stock price.
- Paypal (PYPL): a true pioneer in the digital payment space. There’s no denying the digital age is taking over almost everything in our lives, and the transfer of money is at the forefront. Paypal is one of the easiest ways to bill, send and transfer money between businesses and individuals. I’m a big fan for the long haul.
The stock is currently near $107 per share, and if $65 is an attractive buy-in price, the January 2020 $65 put options (cash codes) is paying out roughly $30 for each contract.
That’s a 39.2% discount to its current stock price.
There you have it. That’s how the cash codes work, and my three best plays at the moment.
I’ll leave you with two thoughts:
- If you sell put options, make sure it’s on a stock that you truly wish to potentially buy. Don’t sell put options just for the sake of collecting the cash. That’s a no-no!
- Come join us at Instant Income Alert – you can click here for more details.