The Easy Money Trade – 70% With Only Two Trades
Back in 2001, everyone on Wall Street was struggling. I was an investment banker in San Francisco at the time. The tech market had just crashed and it was ugly. Investors lost billions; High profile CEOs were being “perp walked” off to jail; Industry leading companies (remember Enron?) were caught committing fraud; and more were filing for bankruptcy.
The NASDAQ was down more than 50% due to the dot-com bubble.
Amazing how similar 2001 is to today!
Back then I made some good money with a very simple trade. It was so easy I was surprised more people weren’t doing it. But after a while, the trade disappeared. You see, the markets are always moving. Strategies go in and out of favor quickly.
The stars align once again.
I’m excited to tell you this “easy money” trade is back! And I found a certain stock perfectly situated for a big gain… if you know what to do.
Give me a few minutes and I’ll show you how to make a quick 70% on your money.
The first step is a big one.
You need to do a bit of research into Citigroup (C). They’re one of the world’s largest financial institutions. Now, as you know, the banking industry is reeling from the credit crisis and troubles in real estate. Citigroup has been crushed…
However, this company is a survivor. With the government loaning them billions, they’re not about to fail anytime soon.
Here’s what you do…
First, buy 100 shares of Citigroup. As I write this, the stock is trading for around $5 per share. Your total cost should be around $500 (plus commissions).
Then, sell a call option on Citigroup. This is called “writing a covered call”.
The call option you want to sell is the January 2011 with a strike price of $7.50. Option traders will realize the option sells for a premium of about $1.00. By selling the call option, you collect $100 cash. Of course, depending on your entry point, your credit might be a little more or less.
Here’s where the numbers get exciting.
You bought the stock for $500 and you sold an option collecting $100 almost instantly. That’s a 20% return for doing very little work. But wait, it gets even better!
The call option you sold requires you to deliver your 100 shares of Citigroup IF the option is exercised. That can happen anytime between now and the expiration date of January 2011. Here’s the great part… if your option gets exercised, you get $7.50 per share for your Citigroup stock… or $750 cash!
A little quick math shows you make $100 selling the option, plus a profit of $250 if the option is exercised. That’s $350 of pure profit on an investment of $500.
An easy money return of 70%.
You’re not going to earn that at the local bank!
Now this isn’t a one-time thing. This isn’t something happening in the past. You can do this right now. The prices are certain to move around a bit, but your return should be in the same range.
One word about risk… you need to hold Citigroup stock until the option expires. If Citigroup runs to $10 a share, you’ll still make money, but leave a little on the table. If Citigroup falls to $1.00, you keep the money from selling the call option, but of course, your stock has fallen in value.
I’m sure you see the power in this simple technique. Now, let me kick it up a notch for all you aggressive traders out there.
Citigroup just crossed over $5.00 per share. This is typically a minimum price point many brokerage firms use for margin. That means you could margin the purchase of your first 100 shares. Your upfront costs would be only $250!
And your returns… let’s just say they’re even better!
Now, this strategy isn’t too complex. However, you need to understand the risks and rewards of “covered calls”. If you have a question, call your broker… that’s why you pay them the big bucks – Right? Best of luck, and don’t forget to send me a note when you’re raking in a 70% “easy money” gain.
Category: Options Trading
