MONEY MARKET RATES DEPRESSING YOU? TRY WRITING PUT OPTIONS!   by Daniel Mollat

in Finance / Banking    (submitted 2011-11-03)

If you are one of those who are grumbling and complaining about how little interest you are earning on your money market account you will certainly want to read this article. You can in fact generate annual interest rates of 15 percent or more on your idle cash deposits by changing the way you invest.

In today's economic environment, where interest rates are down to historical lows, it is no longer good money management to leave your cash in the traditional safe havens of bank deposits, CDs, money market accounts and treasury instruments. Many such instruments are now returning less than one percent with the best returns being in the region of about 2 percent if the amount deposited is very large and the funds are tied up for fixed terms of two to five years. With inflation running at more than 3 percent you need to make your money grow more than this rate or it would be losing value every year.

So what to do? For one, you need to be a little more aggressive on your choice of where to place your cash to enhance your returns. You also need to do a little more than just park your money and wait for someone to do magical numbers with your money. It is time for you to take personal control of your finances and make your money work for you. How? Here's an investment idea that will certainly give you far better returns on your cash without necessarily exposing yourself to risk.

There is a little known investing strategy that is now gaining popularity as a possible alternative to earning high returns on cash reserves. The investment strategy is referred to and is known in the financial world as CASH SECURED PUT OPTION SELLING. This cash investment approach is being used by many rich individuals and institutions to enhance returns on their cash resources of as much as 15% or even more. In very brief terms the technique involves using cash funds as security or collateral to engage in selling or writing put options. While many believe that trading in stock options is extremely risky it is not the case when using the system of cash secured put option selling. Selling cash secured put options in stocks or ETFs (Exchange Traded Funds) is among the safest investment strategies among all options trading systems.

What is the downside or what are the risks involved in the strategy of selling put options? What is the risk of losing my savings in such a program?

The only downside, if you can call it such, is that the stock market as a whole might go into a long and swift downtrend. And since Cash Secured Put Selling is directly tied up to the stock market you may eventually end up having to buy the stock or ETF secured by your cash position thereby owning the shares. But then you would be buying the shares at such a low price that you would stand to gain substantially when the stock market turns around and starts going the other direction. Some would say that in this scenario, the market could take several years to turn around and your investment would then be locked in. In answer to that let's look at the current situation. Presently you would need to invest a very large amount of cash in a money market fund for durations of at least 3 to 5 years to earn just a meager 2%! You are locking your cash for 3 to 5 years for a measly return of 2% per year? In the other scenario where you end up owning shares you may be locked in that investment for the same period yet at the end of 3 to 5 years your stock ownership could give you a return of 100% or more in the form of cash revenues from options sold and appreciation of the stock's value. This is the worst case scenario. The average scenario for those in the Cash Secured Put Option selling business is a steady cash inflow of 2% - 4% return every two to three months.

So, if you have cash deposited in a ridiculously low yield money market account and you want to generate better returns, act now and start learning the simple trading strategy of writing put options. It may be the answer to higher yields on your cash funds.

About the Author

The author is a retired business executive who now dedicates time to trading stock options. His stock and options trading experience spans nearly 30 years. He has been specializing in writing or selling put and call options for the past several years and has written a 'how to' ebook about his successful option trading system. He has devoted one entire section of his ebook on the subject of Cash Secured Put Option Selling. You can learn more at his site: http://www.theoptionseller.com