The 54% Dividend Capture

There's a simple way to earn a 54% annual yield from Google. I'm going to show you exactly how to do it in a minute. But first let me explain why you haven't heard of this before...

The options market is the most "high-octane" market on the planet. That's because option contracts are like medical insurance. Most of the time, you're healthy. The premiums you pay disappear into a black hole and the insurance company wins. Once a decade, you have a major surgery and the insurance company makes you a huge payout. 

There's no middle ground. You either make a small loss or score a huge win. It's the same with options. Option prices can move up or down hundreds of percent in a day. 

Generally, only professional investors write options... like only insurance companies write medical insurance contracts. The gains are so small and the potential losses are so large, it's just not an appropriate strategy for most amateur investors. 

But there is one scenario where it's safe to write options. The technical name for this strategy is "covered call writing." A covered call trade has two parts. First, you buy the stock – a safe blue chip stock works best. Then, you sell a call option against the stock. The stock "covers" your liability on the call option, and the option premium from selling the call turns into a simple income stream.

The financial crisis has caused option prices to explode in value – everyone wants to buy "insurance" on their stocks. So now, covered call writing is a wonderful way to make huge income streams. The premiums are so large, you can make up to 70% a year in income by selling options on the safest blue-chip stocks. And you're covered, so you never have to worry about the risk of dealing with options. 

Let me show you an example using Google. Using this strategy with Google, you can collect a 54% annual payout... 

Google is one of the few stocks that is up in 2009 (it has millions in the bank and a business that continues to grow by about 10% a year, even during this recession). 

Google is a $340 stock. Let's say you buy 100 shares of Google at $340 tomorrow. At the same time, you sell one Google call option contract with a $350 "strike price" and a maturity date three weeks away. What you're doing is giving someone else the right to buy 100 Google shares at $350 a share in three weeks. (One contract contains options on 100 shares, so you can only sell one contract per 100 shares.)

In return for this privilege, the option buyer will pay you upfront cash. As the markets currently stand, you'll get $10.50 per share. The 100 shares you bought cover your potential liability to the call option owner, so the cash you receive becomes a simple "one-off payment."

In this case, you made $1,050 in guaranteed income in three weeks ($10.50 per share times 100 shares). That's a 54% annualized yield. Plus, if Google's stock is above $350, you make a small gain in the stock when the option buyer pays you $350 per share. As long as Google is above $329.50 (that's $340 minus the $10.50 in income), you make money. 

(Please keep in mind... I'm using Google as an example... not recommending you go out and buy the stock.)

I've named this strategy the "Dividend Capture" because it's like collecting special dividends. You get in... you get your payout... you get out... and then you move on to the next opportunity. It's a little more advanced than what most investors are used to. But for those who don't mind a little extra work, it's a great strategy right now.

I've loaded my newsletter's portfolio full of opportunities just like this. If you like the sound of 70% income stream from the strongest American stocks, you should, too...

Good investing,

Tom