| I've often heard you say that the right options strategies can "create dividends out of thin air." What do you mean by that? The beauty of options is that they let you profit from someone else's risky (and often wrong) bets. Let's say that you own a stock trading at $30 per share. Call options exist that provide the buyer with the right to purchase the stock at $40 per share anytime within the next three months. The odds of the stock rising more than 33% in three months are low. For argument's sake, let's say the probability of such a large price rise is only 15%. Yet, there are always greedy traders out in the marketplace willing to make such a low-probability gamble in exchange for the 100-to-1 chance of striking it rich. Subscribers to my trading services can take advantage of other people's greed to generate monthly income, even on stocks that don't pay a dividend! The options strategy is called "covered calls." It involves selling a call option at a strike price above the current stock price. You can sell options for cash without owning them first! This amazing fact allows you to generate income month after month on a stock; income that is in addition to whatever dividend the stock may already pay. Furthermore, because you are selling a call with a strike above the current stock price, you continue to benefit from further stock appreciation up to the strike price. The income generated from selling covered calls can be viewed not only as extra dividends, but also as a risk-reducing cash cushion against a market decline (i.e., lowering the cost basis and breakeven price of your stock). Furthermore, covered calls can be viewed as a way to sell your stock at a price higher than you could get with a limit order. For example, if you think your stock would be overvalued at $40, rather than set a limit order to sell the stock at $40, sell a $40 call option for, let's say, $2. Then, if the stock rises above $40 at option expiration, the call option will be exercised and you will be required to sell it to the call owner for $40. Combined with the $2 you initially received for selling the call, your net sales price is $42, 5% higher than you would have received by means of a simple limit order at $40. I've also heard you say that your strategies allow investors to "buy stock at a discount." Please elaborate. An investor can also sell puts for income. The main difference between put selling and call selling is that put selling is typically done at strike prices below the current stock price rather than above it. In addition, you don't need to own the stock beforehand when selling puts as you do when selling covered calls. Lastly, the put seller is capitalizing on the fear of the put buyer as opposed to the greed of the call buyer. Greed and fear are the two primary emotions of the stock market and option sellers can take advantage of both extremes. The concept of both types of option selling strategies is similar: selling the rights to unlikely price moves in exchange for cash up front. Put selling is another way to create monthly dividend-like income. Furthermore, just as selling calls allows an investor to sell a stock at a premium to a limit order, selling puts allows you to buy a stock at a discount to a limit order. For example, if you think your stock would be undervalued at $20, rather than set a limit order to buy the stock at $20, sell a $20 put option for, let's say, $1. Then, if the stock falls below $20 at option expiration, the put option will be exercised and you will be required to buy it from the put owner for $20. Combined with the $1 you initially received for selling the put, your net purchase price is $19, 5% lower than you would have paid by means of a simple limit order at $20. What about the notion of "stock replacement?" How does that work? Unlike the two option strategies discussed above which involve selling options for a fixed amount of cash up front, the third main strategy involves buying options for unlimited profit potential. To make really big returns, you must buy options. Buying a call option promises a higher return than stock because it also carries higher risks than stock. Whereas stock has an unlimited lifespan and always possesses at least some value above zero, a call option has a limited lifespan and will only have value at expiration if the underlying stock closes above a certain strike price. These limitations (i.e., risk factors) are why call option prices are significantly less than the price of the underlying stock. Lower prices mean that you will receive a much higher return on your initial investment with options than you will with stock - that is, if the stock moves up as anticipated. Editor's Note: I've just interviewed one of our top investing experts, Jim Fink. But I've only scratched the surface of Jim's vast knowledge. As chief investment strategist of Options for Income, Jim has been using seasonality to trade options very successfully. In fact, Jim has developed a "profit calendar" trading system that allows you to collect payments every Thursday, similar to a paycheck. These payouts can range in value from $1,150 to $2,800, but average out to $1,692.50. Jim developed his strategy by studying the tried-and-true practices of Chicago pit traders and modifying them for use online. It's like getting an extra paycheck, week in and week out. The gain is so reliable, you can schedule it on your calendar. Jim made himself a wealthy man with his system. Now he wants to share his secrets with our readers. How does Jim Fink do it? Click here for his presentation. | 
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