You should have seen the look on my wife’s face.

Not one, not two … but three new credit cards rolled into our house.

My wife despises everything related to debt. To her, any debt is bad debt, and credit cards are the worst kind of debt. So for her to find three new credit cards in the mail … you could say she wasn’t very happy.

While I understand her concern, I didn’t open these credit cards to rack up debt. Instead, my plan is to use them to generate cash in the form of cash-back rewards — the only proper way to use credit cards.

Investing can be thought of in much the same way.

 

Twitter
Money Hand Holding Bankroll Girls February 08, 20117 by stevendepolo on 2011-02-08 20:14:44

Like using credit cards to go into debt, you can lose a ton of money in some investments, depending on your strategy.

Or you can invest wisely, and turn the market into your own personal cash-back credit card — but one far better than any offer you will ever see in your mailbox.

Let’s use my credit card analogy to help bring the point home.

I don’t use those cards to buy unnecessary items. Instead, I use them for everyday items that I would have purchased anyway — like gas and groceries — and receive cash back for doing so. It’s as simple as that. The key here is that these were items I would have purchased anyway, regardless of the method. So I might as well get paid to do so, right?

That’s the approach I take in one of my investment philosophies.

If you are already looking to own stock in a large, stable dividend-paying company, then why not get paid to do so?

But it gets even better…

The strategy I’m about to explain isn’t just getting paid to possibly buy something you were already looking to acquire anyway — you also get to name your own price. And if you don’t get the price you want initially, you can repeat the process again and again, getting paid each time and essentially creating your own cash machine.

Here’s how it works…

Put Cash in Your Pocket

It’s the only investment strategy I have ever seen or heard of that offers such a win-win scenario.

It’s easy to implement, and it is probably already available in your brokerage account. Just sign a few simple forms, and you’re on your way to controlling your own stock market cash machine.

The strategy is simple: Sell to open put options.

Unlike a normal put option, where you buy a put option to gain the right to sell the underlying stock at a certain price, this strategy takes the other side of that trade. When you sell a put option, you are assuming the obligation to purchase the underlying stock at a specified price — i.e., the strike price.

This is what makes put selling a win-win scenario. I have used this strategy in Pure Income to generate a greater than 90% win rate. I have also achieved a return of more than five times the average S&P 500 yield each year in income alone.

To keep it short, here’s exactly how it works.

The Path to Steady Income

Let’s say you want to own stock in a large, stable dividend-paying company like AT&T (NYSE: T).

Instead of paying the market price to acquire AT&T stock, and watching the shares bounce around, you can sell a put option at a lower strike price — i.e., the price you wish to pay for the shares.

In doing so, you are effectively getting paid to name your price. And you don’t even have to buy AT&T stock until the shares fall to your target.

But it gets better. These sold put options have an expiration date.

In other words, you can pick an option with a one-month, two-month, three-month, etc., expiration date. If the stock trades below the strike price, you get to buy a stock you were already looking to acquire at a bargain price. If the stock’s price stays above the strike price, you never have to purchase the shares.

In both cases, however, you get paid! What’s more, if you still want to own AT&T at that price, you can repeat the process over and over again, collecting income every time.

If you go in with the intention of owning the underlying shares, there really is no downside to this strategy.

This brings me back to the trio of credit cards I mentioned before.

By taking this same cash-back logic and applying it to the investing world, you can achieve a greater than 90% win rate and essentially create your own cash-generating machine — who doesn’t want that?

If you want to learn more about this income strategy, click here to watch a presentation from my colleague JL Yastine.