In this crummy low-interest rate environment, how would you like to make an income trade that generated 3.6% in 16 days for an annualized return of 46%?
That’s what I just did for my Options Income Blueprint members.
Here’s how we did it …
The stock was First Solar ( ).
First Solar is the best solar company on the planet and the king of large-scale solar installations. Yet, its shares have a tendency to fall in and out of favor with Wall Street.
Just take a look at the two-year chart:
After climbing above $70 in March 2016, the stock declined for more than a year before finally bottoming in April above $25 — a roughly 65% haircut. But from there the stock started picking up momentum, gaining favor with traders and analysts despite the shift in the political climate to one that was much less friendly to alternative energy sources.
This sort of action isn’t for everyone. While the company is in great shape financially, as the recent Q2 earnings release showed, there is a good deal of headline risk in this stock. However, while the volatility may be too much for some, it has the added effect of create larger-then-average option premiums, which is perfect for income-hungry option sellers.
In fact, I recently introduced a trade on First Solar that generated double-digit annualized income — with no help from the stock’s non-existent dividend.
On June 7, with shares trading around $36.92, I recommended selling a $36.50 strike put that expired two days later, collecting $0.43, or $43 per contract sold. The idea was for the put to expire worthless, allowing us to make a quick profit.
However, on expiration Friday, shares were nearing $38, easily placing our $36.50 put option well out of the money.
So, instead of letting the put option expire worthless and settling for $43 per contract, I recommended buying that option back for a few measly pennies and rolling the position out one week by selling the $37.50 expiring on June 16.
We picked up around $0.74 for the total transaction, bringing our cash in hand to $1.17, or $117 per contract, in less than two days with just a few clicks.
A week later, we rolled the position one more time, this time to the $37 strike put expiring on June 30. We picked up another $0.15 in the process, bringing our total cash in hand to $1.32.
So, with just three simple steps, we’d tripled our $132 per contract traded.
On June 30, FSLR closed at $39.88, and the $37 put expired worthless. Those who held through expiration made a 3.6% return in 23 days, or 46% annualized.
However, given the volatile nature of the stock, some traders were understandably a little nervous.
And since no one ever went broke taking a profit, on June 22, with the stock at $37.83, I told those folks they could buy back the option to close the position. This cost us around $0.55, leaving them with a profit of $0.77, or $77 per contract.
While this was a more conservative route, those traders still booked a 2.1% return in less than three weeks, which works out to a 35% a year if you could repeat this trade every three weeks.
Either way, they earned a 35% to 46% annualized yield on a stock that doesn’t pay a dividend.
About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. He has never looked back. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business and as the writer and editor of Hedge Fund Investing.
He has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
Most importantly, since 2010, he has dedicated himself to teaching income investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts, his goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio, meaning his trades produce the expected income 98% of the time. No one’s perfect.