Option Strategies for High Yield Income Investors

How to Get High Yield Income Without High Risk

In two related articles, we looked at how a value investing with options approach can solve the biggest problems facing both value investors and dividend growth investors:

For value investors, it's realizing that elusive dream of acquiring world class businesses at bargain basement prices so they don't have to resort to becoming what I call a "value trader" and settle for trying to get a (hopefully) great price on a terrible to average business in the effort to flip it at some point for a one time profit.
For dividend growth investors, it's dramatically speeding up the dividend growth and compounding process so you get higher yields and more total dividend income in a fraction of the time.

A Not Exactly Funny Joke

Question: You know the biggest problem with safe, high yield current income?

Answer: For the most part, it doesn't exist.

That's not a particularly snappy punch line, I know, but it does happen to be true.

In today's market environment, if you want safe high yield income, you're up the proverbial creek.

Seriously, what good choices are out there?

>> Perpetually low interest rates mean that traditional fixed income investments aren't going to cut it (and really haven't for more than 15 years).

>> Investing in high quality dividend-growth type companies can eventually lead to low risk, high yield income.

But the major drawback is that the process is so back loaded that you need at least 10-15 years before you start to see results.

>> OK then - what about utilities, telecom, REITs, and preferred stocks (which are more bond than stock)?

These offer a little higher yields, but let's be honest - unless you have a sizable portfolio, 5-6% vs. 3-4% isn't a huge difference in yield.

And you typically sacrifice some level of future growth (both income and capital appreciation) that way as well.

AND if interest rates ever do begin to rise (I know that seems fanciful and farfetched, but it really will happen some day), those stocks will likely be the first to come under pressure.

The Problem with Investing for Current Income

But what about the here and now - what if you're not interested in acquiring for the long term ownership stakes in the world's best businesses?

And what if you're not interested in building up a massive dividend income stream you can tap into down the road?

What if you want high yield income today - but you're afraid of the risk that comes with high yield income?

Because, let's face it - risk is the number one issue you have to contend with when searching for high yield income opportunities.

There's just no way around it - the higher the current yield is on something, whether we're talking about a stock or some form of debt (e.g. bonds, preferred stocks, etc.), the higher the risk.

It's called "chasing yield" and it's one of the most dangerous things you can do as an investor.

A Cautionary Tale About GM Bonds

I remember Nightly Business Report did a segment back in 2009 on a retiree who basically sunk his entire life savings into GM bonds about a year before its bankruptcy.

And he convinced other family members to do the same thing.

All I could do was cringe as I watched this.

He didn't buy the bonds because he believed that GM was a great business.

He bought because the yields were high and because he couldn't imagine that GM, which had once been a great business, would be allowed to go bankrupt.

But one of GM's core problems was they had way too much debt - they simply could no longer survive under the weight of that burden any longer.

It was heartbreaking to see this retiree squander a lifetime of hard work trying to eek out a few extra percentage points of yield by basically walking blindfolded across a minefield.

How Options Can Help You Reach Your Income Goals

So is it possible to use options to engineer your own low risk, high yield income opportunities instead of scouring the landscape for ready made products and vehicles like everyone else?

Can you use options to help you overcome your greatest challenge as an income investor and actually generate high yield, low risk income?

Not all option strategies are created equal, of course.

If you're a pure trader, or a calculated gambler as I call it, you can make a killing trading options.

But you can also have your head (or another important body part) handed to you.

High risk doesn't mean there's a chance you're going to do better than everyone else.

It means that it's only a matter of time before you suffer a big loss.

That's why I only teach - and employ myself - customized strategies that are both relatively simple and what I call structurally advantaged.

Such as our primary put writing based Sleep at Night High Yield Option Income Strategy that's designed to consistently produce high yield income and ample opportunity to repair the trade should anything go wrong.

Structurally Advantaged Option Strategies

Remember, when we write puts, we're essentially acting as an insurance company who insures the price of a stock.

(For example, if I write or sell a single put option contract at the $30 strike price that expires in one month, I'm being compensated for offering to buy 100 shares of the stock @ $30/share.)

But the cool, "structurally advantaged" thing about short options is that they can always be "renegotiated."

Just because the underlying stock falls and is now trading below $30/share as expiration nears doesn't mean I automatically lose money or have to buy the shares.

I can make any number of key adjustments in order to improve the trade.

I call it being "The Insurance Company from Hell." My objective is to collect lots of premium and then do whatever it takes to avoid paying out claims (i.e. being assigned the shares against my will or buying back my short puts for a loss).

Selling puts - like writing covered calls - can be a pretty forgiving strategy even in generic mode, but I spend years and years studying, experimenting, and perfecting an advanced trade repair process which I call the 4 Stage Short Put Trade Repair Formula.

The Sleep at Night High Yield Income Course includes full Trade Management training and gives you the benefit of everything I've learned, discovered, and invented over the last 10-15 years renegotiating and repairing my trades at Mr. Market's expense.

This is how I'm able to make great returns when I'm "right" on a trade, and almost always decent to good returns I'm "wrong."

(Think about the implications of that for a few minutes.)

It's also how I've largely been able to avoid losses with the model portfolio I manage inside The Leveraged Investing Club - and you can check out the results here.

(It was discovering these kind of "structurally advantaged" trades that was a major factor enabling me to leave behind for good my soul-battering corporate career back in 2009 during the depths of the Great Recession.)

The Sleep at Night Course and Lifetime Membership in The Leveraged Investing Club

Tired of the choice between having to take big risks for high yield income or settling for paltry yields just so you can sleep at night?

If you want to learn how to become an "Insurance Company from Hell" yourself and manufacture your own personal high yield salary, I've put together a 5 week, self-paced course to teach you EVERYTHING you need to know to do just that - and without boring you to death with dry, complicated, dull training videos.

The Sleep at Night High Yield Option Income Course is designed for the investor - in the U.S. or outside the U.S. - who knows that there has to be intelligent and realistic ways to stack the deck in one's own favor.

Or the investor who knows there has to be a way to consistently generate high yield income but without assuming dumb risks in the process.

The good news?

There is - and I can show you exactly how to do it, regardless of your experience level, background, or previous track record.

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