Make 50% More on Your Investments

Written By Briton Ryle

Posted July 2, 2014

Earlier this year, I got bullish on gold.

I started recommending a small gold mining stock called Allied Nevada (NYSE: ANV). You may recall that I called this stock a good buy at $4.60 here in Wealth Daily on January 15…

Among the gold miners, Allied Nevada had been one of the worst performers since gold hit its all-time highs in 2011. The share price was above $40 at the time.

I don’t always bottom-fish for stocks, but when I see a big turn coming, I like to find the stocks that seem to have been unfairly punished. Allied Nevada fit the bill.

The company has a nice property, the Hycroft Mine, in Nevada.

This mine is an open-pit mine and has 10.6 million ounces of gold plus a good deal of silver. And Allied Nevada is good at increasing production. In its first full year at Hycroft, the company produced 42,358 ounces of gold. This year, the company expects to mine 230,000 ounces of gold.

Allied Nevada’s cash cost runs around $800-$850 per ounce. Once the price of gold stopped its decline above $1,100 an ounce, Allied Nevada looked very attractive.

Gold prices surged in February and March as Russia started moving on Crimea, and Allied Nevada ran to around $6.30 by mid-March. That was a pretty nice 36% run for the stock.

But I liked the value in Allied Nevada and thought it could do much better than $6.30. (I still do, in fact.)

So when gold prices got whacked after Crimea was peacefully absorbed by Russia, I wasn’t too concerned about selling the stock. Instead, I used another strategy to generate cash from the shares…

Protect Your Investments and Prosper 

A call option is a contract between two investors. And just like with stock, options contracts can be bought and sold.

Options contracts are different than stocks because an option contract carries explicit terms. Once an investor purchases a call option contract, he or she has purchased the right (or the “option”) to buy shares of the stock the option contract covers — if he or she wants to.

The investor that sold the call option contract has the obligation to provide the stock to the call option owner if the call owner decides to buy the stock.

If the call seller already owns the stock, then the call option is said to be covered — in other words, the terms of the call option contract are “covered” by the stock you own.

I know all this may sound a bit confusing, but the point is this: you can sell the right to buy stock you already own at a higher price than what you paid for it.

In the case of Allied Nevada, when the stock was at $4.60, you could sell someone else the right to buy it at $5. You can profit from both the stock and the call option you sold.

Now, options aren’t just for stocks. They are used in real estate all the time. A developer might buy an option on a property to secure it while he checks on financing. A movie producer might buy an option on a script while he shops the script around.

The point is, there’s not much risk when you sell an option to buy something you already own. And you could make a much bigger profit.

More Profit, Less Risk with Covered Calls

Allied Nevada currently trades around $3.75 a share. That’s $0.85 lower than where I recommended it.

If you’d bought 1,000 shares for $4,600, you’d be down $850. But since February, I’ve helped some investors sell $1.00 worth of call options on Allied Nevada. They’ve taken in $1,000 in cash on that thousand-share position.

These investors have turned a loss into a gain with covered calls. And when Allied Nevada returns to a more reasonable valuation, the profits will be even bigger.

That’s the power of selling covered call options.

I just recommended a new stock to these investors. It’s a renewable energy company that helps companies lower costs in their warehouses. And right now, several of the biggest warehouse companies are testing the product. Companies like Wal-Mart, Coca-Cola, and Lowe’s…

It seems inevitable that one — or all — of these companies will adopt this technology and send shares launching higher. Any announcement is still a few months out at best, and so we are raising cash with covered call options.

The shares of this renewable energy company currently trade around $4.75. You could buy a thousand shares for $4,750 and immediately sell call options worth $500. That cash goes right into your account.

And if the shares stay where they are for a couple weeks, we could get the opportunity to sell more call options and take in another $500.

Until next time,

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

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