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The Wall Street adage “Sell in May and Go Away” is once again upon us. And if history repeats itself we could be in for a rough summer.
It can’t be denied…May is the start of a historically weak six-month period for the market. The Stock Trader’s Almanac states that a $10,000 investment compounded to $544,323 during the November-April period over the last 56 years compared to a $272 loss for May-October.
But I have an easy solution for the six-month slump.
Some asset managers recommend moving assets from stocks, ETFs or mutual funds to cash or bonds during the Sell in May period. The switching strategy might be a great alternative for a retirement account where long-term wealth building is the goal. Plus, you have the added peace of mind that your nest egg is safely stashed during the summer months.
And while I do agree that this is a sound strategy for the nest egg portion of your portfolio, as an income investor I’m not inclined to take a passive approach with my entire portfolio. I want to safely generate steady income. And I do so using a calculated, statistical approach.
Covered calls are one way that I simultaneously hedge stocks while generating income. But, my favorite way to collect safe, steady income is through selling out-of-the-money puts on conservative stocks and index ETFs.
During last year’s “six worst months” I successfully brought in income 19 out of 20 times for an average return on capital of 3.53% every time I sold a put. I used an assortment of blue-chip stocks such as Microsoft (Nasdaq: MSFT) and ETFs such as Market Vectors Gold Miners (NYSE: GDX) as the foundation to create that income.
The strategy allowed subscribers in my High Yield Trader service to reap over 47% in the GDX, 33.5% in MSFT and 20.1% in Wells Fargo (NYSE: WFC) – all within the last year.
This selling puts strategy has the highest probability of any strategy in the investment universe, and for that reason it is one of the most popular strategies among professional investors.
Selling puts is no more risky than its synthetic equivalent, covered calls. Both strategies have the same risk/reward profile, meaning they have the same net investment and profit potential.
But unlike covered calls, selling puts allow you to generate a steady, reliable stream of income without actually owning any stock. And if you want to own a certain stock, you can purchase it at the price you want. The best part: while you’re waiting for the stock to hit a specified price you are able to continuously collect income…essentially getting paid to be an investor.
So, why would you ever set a limit price when you could sell puts and collect income while waiting for your price to hit? But let’s save that conversation for another day.
Selling puts is NOT inherently dangerous. If used correctly, it’s no more dangerous than any other type of investment. In fact, it’s often safer. Keep this in mind as we move into the “Sell in May and Go Away” period.
It’s never too late to consider learning alternative investment strategies as a way to diversify your current portfolio so that you are better equipped in any market environment –bullish, bearish or neutral.
If you would like to learn more about selling puts, and covered calls for that matter, click here. Within the video I discuss my step-by-step approach to both strategies.
If you’re truly interested in safe, reliable income, you owe it to yourself to consider these strategies.
3 Strategies for Producing Safe, Steady Income Using SPY Weekly Options
I’ve posted a free video replay of my 60+ minute webinar. Follow the link below to watch and you’ll discover how you can consistently steady income… even in flat markets…using weeklys. And you’ll receive free action-specific trades you can execute immediately — for gains you can earn in as little as 8 days! Click here to watch this video replay now.