Marc Lichtenfeld, Chief Income Strategist, The Oxford Club Editor's Note: Sometimes desperate times call for desperate measures. Back in 1990, The Oxford Club's Chief Income Strategist Marc Lichtenfeld was struggling to generate income – until he made one mind-blowing discovery. In today's guest article, Marc reveals his big financial breakthrough, and how it shaped his entire investing career. Plus, he's showing readers a special way to make income in just 5 minutes each week by trading ONE ticker symbol. Click here to learn more. - Ryan Fitzwater, Publisher
Dear Reader, Back in 1990, I was just out of college and fairly broke. I was living in a basement apartment with two roommates. It was a dump. At the end of each month, my meager paycheck was basically gone. I decided I needed to learn about the stock market to make some money. I read everything I could get my hands on. I spent many Saturdays at the New York Public Library absorbing as much as I could. (This was before the whole world was available on the internet.) Soon I started trading and investing in stocks. And then my mind was blown when I discovered options. Where I Started: Buying Puts and Calls to Speculate Like most people, at first, I saw options as a shortcut to quick riches. Fortunately, I knew that I didn't know what I didn't know (ya know?), so I didn't start trading options until I had a better understanding of them. But even then, I was only buying puts and calls as speculations. A put is a bet that a stock will go down. A call is a bet that it will rise. These option contracts allow you to control 100 shares of stock for pennies on the dollar for a specific amount of time. For example, if you thought Bank of America (NYSE: BAC) was going higher in the short term, you could buy 100 shares for about $5,250. If the stock rose 10 points, you'd make about $1,000. Or you could pay just $325 to buy a call that expires in March with a strike price of $52.50. That means if the stock is below $52.50 at expiration, your call expires worthless. If it's above $52.50, the call will have value, depending on how high the stock rises and how much time is left until expiration. If Bank of America shoots higher next week and is trading at $62.50, 10 points higher than it is today, your call would probably be worth around $1,100. So you'd be up $775 on a $325 bet. If you'd bought the stock, you'd have risked $5,250 and made 19%. By buying the calls, you risked only $325 and made 238%. You can see why people speculate with options. You risk less and can make a much higher percentage return. My Big Revelation: Selling Options But as I dug deeper into options, I learned something stunning: The real money in options is in selling them, not speculating with them. When a speculator buys a put or a call, someone has to sell them that option - and they get paid to do so. Big financial institutions generally aren't trying to hit home runs buying calls on Nvidia (Nasdaq: NVDA) and taking on that risk, but they'll be happy to sell you some. The more I understood this, the more I wanted to sell options to generate income right away. Now that I'm older, while I still like to swing for the fences once in a while, my priority for my investments is generating income. But over the past decade, I've increasingly used options to generate income with various strategies, including (but not limited to) covered calls and naked puts. | 
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