How to Buffer Your Account From Chaos By Michael Salvatore, Editor, TradeSmith Daily Remember when the stock market was boring?
Think back to 2017, perhaps the most gloriously boring year in stock market history. The biggest single-day pullback in the S&P 500 that year was less than 2%. The longest losing streak was no more than five days.
We can't depend on the market to continually hand us years like that. But we also don't need to accept volatility lying down.
Certain strategies let you ignore the noise and continually rake in meaningful amounts of cash to your brokerage account.
Here at TradeSmith, we call it Constant Cash Flow. It's one of the most consistent income-generating strategies I've ever seen, with a near-perfect record of batting single after single to build up an immense cash pile over time.
It's helmed by our income expert, Mike Burnick, who does an incredible job of both teaching folks how to use this strategy and mitigating the risks that come with it.
That's why I recently caught up with Mike for a one-on-one discussion all about the Constant Cash Flow strategy and what it takes for the average investor to get involved. Read on for my interview with Mike. |
Michael Salvatore: Mike, right now is an incredible time to be selling options for income.
Really, outside of market crashes, there's no bad time to sell options for income. But right now, when we're facing short-term bouts of volatility and option premiums are high, it's the ideal time.
So I want to take a deep dive into that strategy today.
But before we do, Mike, can you tell us a little bit about your background as an investor and where you specialize in the markets?
Mike Burnick: Sure thing, I'm happy to.
Well, I've been in the business over 35 years, and during that time, I've done it all, literally, I mean, a bit of everything. Stock broker, analyst, trader, money manager, you name it.
I've always been a bit of a "quantaholic" myself, as I like to say: always into technical trading systems, quantitative analysis, that sort of thing.
And so being here with TradeSmith is – it's like a match made in heaven for me. I mean, with all the powerful analytical tools that we have at our own fingertips here, I'm just loving it.
Michael S.: You could not have picked a better home. TradeSmith is the undisputed king of analytical tools and quantitative strategies. One of which is the Constant Cash Flow algorithm.
Regular readers are probably very familiar with Constant Cash Flow. It's an algorithm that spots options trades designed to draw constant income from the markets.
So, every single day, the Constant Cash Flow algorithm sends our subscribers an income opportunity via selling put options.
Since we started sending these opportunities more than a year ago, we have a 99.1% win rate.
In fact, a few weeks back during a June option expiration, Constant Cash Flow actually closed out 17 winning trades in a single day, generating roughly $1,000 of income in the process.
The track record is great, but it's not everything.
I want to talk about how these trades actually work. Because every strategy has its strengths and weaknesses, risks and rewards.
So, can you just talk on the strategy itself? What you're actually doing when you sell uncovered puts? And what kind of money you need to get started?
Mike B.: When you're selling an uncovered put option, you're essentially selling another investor the right to sell a stock at a specific price and by a specific date – and specifically stocks that you're exposed to.
In exchange, you get paid a little bit of income by selling that option. And then when it expires, you keep the income and you move on to the next trade.
But, of course, there's a risk in that. The option buyer has the right to exercise the option and sell you 100 shares of the stock in question. That means you'd be on the hook to buy them. And that means you do need a little bit of capital on hand.
For any given trade, you need enough capital to buy those 100 shares per option contract you sell. And that can total up to tens of thousands of dollars on certain stocks.
You can have either the cash or the margin balance in your account that your broker gives you. And the more assets you have in the account, the more they're willing to lend you.
Though, we should emphasize that this [buying 100 shares] is a rare scenario. The strategy is designed for this not to happen – and it has a strong track record for this. Michael S.: It's so important to talk about these risks. So often you only hear the benefits of certain trading strategies. And that can set folks up for failure if they don't know what they're getting into.
On that note, let's talk about the worst-case scenario in selling uncovered put options. How would you describe that?
Mike B.: The worst thing that can happen, as you put it, when you're selling a put option is that you actually get put shares of the stock when you may not intend to.
But since my team and I are analysts at work here on Constant Cash Flow, we thoroughly evaluate every single trade. We know in advance they are very high-quality stocks that we're working with. And so you don't really have to worry so much about getting put a stock if it's a good one.
Or to avoid assignment, you always have the choice to buy back your option prior to expiration and close out the trade.
But let me give you an example. Just from this week, we sold put options on Alphabet-parent Google. Everybody knows Google, one of the Magnificent 7. And those options expire on July 26.
Now, Google shares today, they're trading about 10% or so above the option's strike price. According to our Probability of Profit algorithm, which is what we use to identify these trades, you've got basically an 81% probability of earning a profit between now and expiration.
We've developed the POP over years and years and millions of dollars in operating costs to pick out the very best handful of trades available at any given time.
And again, if we do get put the stock, then the worst case is that we own a very high-quality company at roughly a 10% discount to the market. So that's not a very bad worst-case scenario, in my book.
Michael S.: Exactly. If the worst-case scenario is that I get to own a bunch of stock at a lower price than I thought it was going to go, then that's just dandy to me.
And hey, if I really just wanted the income on that trade and I wasn't interested in the stock, guess what: I can go around and just sell that stock again, and get right back to doing what I was setting out to do in the first place.
Mike B.: Or you can get put the stock and then immediately start writing covered calls and bringing even more income that way.
Michael S.: It's so funny: people own these stocks and they don't realize how much income potential there really is beyond the world of dividends.
Yes, it's a little bit more active. And yeah, there are some risks and there are some learning curves involved.
But it's really extraordinary what can be done, especially when you're backed up by something like TradeSmith's algorithms, which just make it so much more likely that you're going to win.
Mike B.: Yeah, that's a great point too that you make. I mean, a lot of investors these days, if they're in dividend stocks, they're collecting a dividend every three months or every month in some cases.
What we're doing with Constant Cash Flow is a lot more frequent. And we do it on our own terms.
We're declaring our own dividends, and we're declaring them every single day the market is open. Michael S.: It's really enriching to think about stocks this way, on multiple fronts.
There's the most literal meaning, where trading this way helps grow your wealth. But it's also teaching you a skill you didn't have before.
Of course, the service includes your Master Class, where you're teaching people all about how the strategy works and how to use it effectively.
It also includes Mike's Money Line, which I have to point out is always a joy to watch. You cover a lot of different economic news, market news, things that are pertinent to the trades, and you're also sending regular emails about how to handle open positions.
So, it's not like you're just getting a stream of alerts. You're also getting a lot of guidance and a lot of hand-holding, which I think makes the service really special. Altogether, Constant Cash Flow is such an extraordinary way to make a little extra income, which is so important in a world where inflation is still relatively high compared to the last 20 years. It's not as high as it was. But there's no doubt you need a little bit more income to stay ahead than you used to.
Keith Kaplan a few weeks ago wrote a piece about how Social Security is going bust. That's not from our mouth, that's from the government's mouth. And so you need to really be thinking about these things as you get closer to retirement if that's what you're looking at as an investor. So, we'll have those details for you.
Mike, thank you so much for joining me for this conversation today. It was a real pleasure.
Mike B.: Thank you, Michael, I appreciate it.
Michael S.: If you're interested in using Mike's Constant Cash Flow technique, go right here for a research presentation where Mike shows you what it's all about.
Trading like this is an essential skill to learn right now. It helps insulate you from market volatility, keeping the cash rolling in to supplement your income.
All it takes is a little time to get set up, a little know-how (which you'll get for free with our excellent Master Class video series, plus Mike's special reports and tutorials), and a few minutes each day to trade the recommendations.
To start trading like this and making money no matter what curveballs get thrown our way, go here and see what Constant Cash Flow is all about. To your health and wealth,  Michael Salvatore
Editor, TradeSmith |
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