Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Healthcare, A Safe Options Strategy for Retired Investors

Companies / Options & Warrants Aug 07, 2010 - 07:41 AM GMT

By: DailyWealth


Best Financial Markets Analysis ArticleDr. David Eifrig writes: Most people know stock options are a great way to get rich in America...

Take Stephen Hemsley, CEO of the big insurance firm United Health Group. His 2009 salary came in around $9 million. But a decade earlier, he received stock options as part of his compensation package. In 2009, he exercised 4.9 million of them for a total gain of $98.6 million.

These huge option payoffs are just business as usual on Wall Street... and most of the time, there's nothing wrong with them. Several of my good friends will never have to work again because they exercised options on thousands of shares of company stock.

These options allow people to buy a company's shares for a small amount of money, then eventually sell the shares for much higher prices. They can bring in hundreds of thousands of dollars of extra income.

Most people have to work for years to receive stock options from their employer – or use risky trading strategies to acquire in-the-money options. They have no idea there's a way to receive free stock options any time you want them.

Acquiring free stock options is one of the easiest, safest ways to invest in the stock market. It's a strategy I learned more than 20 years ago while trading derivatives on Wall Street. And I guarantee 99 out of 100 investors have never heard of it before.

Let me give you an example of what I mean...

One of my favorite companies in the medical and biotech stock sector is $100 billion British drug giant GlaxoSmithKline (GSK).

GSK is an innovative Big Pharma company with an exceptional research & development process. It constantly increases shareholder equity... and has a culture of treating investors well in the form of big dividend payments.

Right now, GSK pays an annual dividend of $1.84 per share. This annual dividend payment is important. It's the key to our "free stock option."

I love to own safe stocks that pay big dividends like GSK. But I also like the tremendous leveraging power stock options provide. That's why I often buy these sorts of stocks... then take the money I receive in dividends and buy call options with them. I fund the speculative portion of my position with the company's dividend.

Making these trades is like getting free stock options.

Let me show you how a trade like this can work...

Right now, GSK trades around $35 a share. The January 2012 call option on GSK with a strike price of $40 (which will appreciate tremendously if GSK rises a good deal) sells for just $1.90. So you can use your dividend to pay for the option. Essentially, you're getting the option free.

Now, let's say GSK absolutely soars, hitting $70 per share by January 2012. Your gain on the stock is a solid 100%. But your "free" option is now worth $30. Your gain on your whole position will be 186%. That's the kind of leverage an option can give you.

If GSK trades modestly higher, settling around $45 per share by January 2012, you've made about 25% on your stock. Still pretty good for 18 months. But your extra gain from the free option kicks your profits up to 43%. That's a terrific return on a super-safe stock.

The thing about this strategy is you're not taking on an ounce more risk than you are when you just buy the stock. So your downside is exactly the same (I recommend using a 25% trailing stop on most of my positions). But your upside is dramatically higher. And if you use the dividend to cover the cost of the option – you're getting all that upside free.

Now, there are a lot of moving parts to this trade that I don't have the space to cover here. But one thing to note is that this isn't a "covered call" trade, where you buy a stock and SELL a call option against your shares.

There's a time and place for covered calls... But in situations where you want full exposure to the upside, and you can pay for an option with a company's rich dividend, you want to buy a stock and BUY the calls. You'll get a lot more "juice" on conservative trades like GSK.

I recommended a version of this GSK trade for my Retirement Trader subscribers back in April (it's still an attractive idea). But even if you're not interested in putting on this trade today, here's what you need to understand: There are a lot of ways to use options SAFELY.

Many investors are afraid of options. They think they might as well toss their quarters in a slot machine. And given the way a lot of traders use options, they're right.

But if you're a conservative investor, especially if you're retired or nearing retirement, consider this "free option" strategy and others like it. There are many different ways to use options in order to make great gains... while risking less than you do in conventional stock positions.

Here's to our health, wealth, and a great retirement,

Doc Eifrig
P.S. I cover the "free option" strategy – and several other ways to safely increase your upside – in my Black Book of Retirement Trading Secrets. My Retirement Trader subscribers have used these techniques to safely book gains of 100% in May and 93% last month. We're already up 57% on our most recent trade... made two weeks ago. To learn more about my strategies, click here.

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in