Get Paid to Buy Stocks

Buffett's secret formula.

Posted July 12, 2021

“Ten years from now, you’ll put on a jacket and find a mask in the pocket. ‘Oh man, what a weird year that was,’ you’ll chuckle to yourself. Then you’ll pick up your machete and continue across the wasteland, keeping to the shadows to avoid the roving gangs of cannibal raiders.” — @CasualThursday

In the year 2020, the Earth stood still. Travel, trade, and socialization ceased as we crawled into our homes to await word from our keepers that it was safe to come out.

A mysterious virus... millions of lives lost... mask mandates... a world economic shutdown... a market correction... meme stock explosions... inflation fears... 

Thankfully we’re alive to tell the tale.

But make no mistake... This isn’t over quite yet. Some impactful events unfolded last week that will set the tone for the next decade.

First, the world is still not vaccinated. In fact, the “unvaxed” account for 100% of new deaths from the coronavirus, the Delta variant accounts for 50% of all new cases, and the vaccines seem less effective against the new Lambda variant. Will it ever end?

Speaking of never-ending, last week our “forever war” in Afghanistan drew down even further, with all U.S. troops slated to leave by August 31. The withdrawal has created an obvious vacuum of which the Taliban is taking advantage. As the Taliban takes control of more cities and Afghan soldiers flee, the country will enter a bitter power struggle. President Biden indicated the Afghan forces have the capacity to defend against the Taliban, but it’s clear morale is low. I’m hopeful for the nation’s future, however, as the country was once a premier exporter of high-quality produce like dried fruits.

Next, an NSA whistleblower confirmed that the organization had in fact obtained Fox News host Tucker Carlson’s emails and then leaked them to the media. This is a bad look for our country’s intelligence agencies, and there needs to be accountability and transparency or we will lose all trust in our government.

And finally, just when you thought things couldn’t get any weirder, Jeff Bezos stepped down as CEO of Amazon (NASDAQ: AMZN) to pursue his lifelong dream of space travel. I’m rolling my eyes at this. I think he’s just bored, and I bet he’s not too happy that on Sunday, billionaire mogul Richard Branson of Virgin Galactic (NYSE: SPCE) beat him to space. Branson even told Bezos that he could come to the launch and watch! The two are now being criticized for spending so much money on space exploration.

But it’s what comes after all this that excites me. Clearly, space tourism is coming, as well as a more connected world.

But through all the change, one rule will remain: Profitable companies with strong sales figures will continue to grow and provide security for your money.

Of course, in the short term, no one knows which direction a stock will move except the insiders...

But there’s a way to get paid by attempting to buy stock so that you don’t have to risk capital buying shares.

Let me explain...

Buffett’s Secret Formula

When I started investing, I traded a lot of options. I liked the quick moves and satisfaction of being correct about my predictions, but I eventually wanted to take on less risk. That’s when I discovered strategies besides just buying calls and puts. I learned I could write contracts myself by selling options, which led me to put selling.

When you sell a put — also called writing a put — you’re saying that for each contract you sell, you’ll buy 100 shares of the underlying stock if it falls to or below the strike price (otherwise called “being put”). For taking on that risk, you’re paid a cash premium.

Throughout his career, Warren Buffett collected $7.8 million in cash premiums selling puts on Coca-Cola (NASDAQ: COKE). And during the financial crisis of 2008, he made $4.9 billion selling puts on the S&P 500. Investors bought the puts as insurance because they knew if the index dropped below a certain level, Buffett would buy it. But he wanted to do this anyway because he knew the index would go up in the long term.

Just remember that if the stock you sell a put on stays flat or increases in price, you get to keep the premium, and if it hits the strike and you get put, you’re obligated to buy the stock at the strike price.

Now, I’ve created my own probability calculator that tells me the likelihood of being put, and I’ll comfortably sell puts when the probability of being put is less than 25%. I tend to exit these trades early anyway to lock in profits.

Just make sure to stay tuned for more because this winning strategy works in any market...

Monday Market Movers

Markets blipped lower last week, giving us a nice opportunity to look at a couple of discounted stocks.

  1. Airbnb (NASDAQ: ABNB)

    After going public in December 2020 at an initial list price of $68, Airbnb shares more than doubled to around $145, giving the company a valuation of $86.5 billion. It jumped to more than $200 at the beginning of the year and quickly fell back to the $145 level, meaning we could be seeing a support line. Airbnb gives you worldwide travel exposure, and with world economies picking back up, this is a no-brainer play.

  2. Sundial Growers (NASDAQ: SNDL)

    Marijuana companies are a mixed bag (no pun intended), and I consider them all speculative unless they pay a dividend. After trading at a high of $11.50 in August 2019, Sundial dropped to around $0.14 at the end of 2020. It’s now back up around $0.90. This clearly is a speculative penny stock, but I like the risk-reward here.

My philosophy is to never invest more than you can afford to lose, position size according to your risk profile, implement a trailing stop strategy, and always, always use a limit order. Stick to these guidelines and you’ll never be short of speculative cash.

To your wealth,

Alexander Boulden
Editor, Outsider Club

After Alex’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

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