This is an interesting headline and the sort of thing that many people view as being passive income. However, on considering this a little more, there are a few investment strategies that effectively work this way.
With the stock market back at record highs, many are back out there. Promoting all sorts of systems for picking the next rising star. However, such systems rely on one critical and over looked fact. You must get the direction right if you wish to get paid! Sounds simple but effectively this is a 50/50 bet at best.
So rather than introduce a variable with 50/50 odds, where can we find a higher probability of success?
The old expression ”as sure as day follows night” is really the answer – one thing we can guarantee with total certainty is that time does pass by. Now if time passes by, we have opportunity – and that is an opportunity that is guaranteed and probably why you should take a closer look.
Being paid for time passing, rather than being paid for your time
One of the most compelling reasons for looking at trading options is being paid for time. What I mean by this is that one of the major components of an option and its value is a time component – something which diminishes each and every day of the option’s life.
By selling options, you are effectively receiving this time decay in your pocket.
Is selling options risky?
All of the options trading that we engage in, is covered – that is where the risks on the trade are contained and known up front. There are others out there that promote selling naked positions. Especially puts, which frankly can become a catastrophe when it goes wrong. One of the many reasons why this is not a strategy. That we promote for retail investors.
So by being in a covered position, you are containing risk. But how do you then get paid?
Lets look at a recent close out of CBA – a trade mentioned earlier in the week. The trade itself saw us enter for clients a Bear Call Spread on the 27th of August. Full details of the trade can be accessed here
The Close price of the entry day was $73.47 and yesterday’s close was $72.86 – a move down of less than 1%. However, as we run into expiry, the time decay factor – not move in the stock price, enabled the trade to be closed out for around 47% gross profit.
Think about the melting ice cube
That is, holding this trade, you have been paid for time passing by, and while you sleep! For many, this is a concept that is difficult to digest so to keep it simple – the buyer of an option is effectively holding an ice cube in their hand and it is melting. The closer to expiry, the faster it is melting until there is nothing left. As an option seller – this is exactly what you are looking for and is a good outcome.
Surely there is more to it?
Of course – but the core principle of getting paid for time passing by is the core of this and like any core or foundation of a strategy, needs to be irrefutable. So with that robust core, we can then start to build up our trading activities around that.
The next step is focusing in on how much leverage, if any, that you want to use. The true beauty of this approach is you can tailor the leverage you are going to use to suit your needs – very different to being obligated to use the 10x leverage of your CFD provider and certainly far safer.
From here, the timing of setting your trade up is the next step and there is a defined sweet spot. That produces the best kinds of return. From a timing perspective and having that as a key step in your plan will aid your success. Probably more than any other single aspect.
What else?
Just like learning to swim, you can get the theory from a book. But until you get in the water, it is simply a concept! So how can we help you lock in what is a proven investment strategy into your wealth creation?
If you would like some more information in regards to this, then contact us, and one of our team would be delighted to help.
Learning how to safely sell time, is a key breakthrough in your investment journey – once you have it mastered. You have the keys to the toy shop. Getting paid while you are asleep is what many investors dream of, no pun intended, and that is exactly how this strategy will work for you – a sleep at night strategy where the odds are in your favour!
