Buffett's Income Secret.

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Buffett's Income Secret

Written by Briton Ryle

Posted September 16, 2015

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For most individual investors, there's just one

strategy for making money in the stock market:
You buy a stock, and when the price goes up,
you make money. Some investors buy dividend
stocks for the regular dividend payments.

But there are many other income strategies out

there that savvy investors use to make regular
income. Some of these strategies can actually
be safer than traditional "buy and hold"
investing.

Today, I want to tell you about one such income

strategy that many of the world's most famous
investors (including Warren Buffett) use
regularly. You don't hear much about this
particular strategy, because the big investors
would rather keep some of their best strategies
secret...

One of Warren Buffett's biggest secrets is that

he gets paid regular cash income for simply
agreeing to buy a stock he likes at a price he
likes.

He used this strategy when he bought Coca-Cola

stock in 1993. What's more, this strategy paid
him a cool $7.5 million in cash that year
— before he even bought Coca-Cola shares.
Think about that for a minute: Buffett made $7.5
million for basically doing nothing at all. And the
thing is, investors just like you get paid cash
income every day without putting any money at
risk in the stock market using this
income strategy.

Let me explain exactly how Buffett's secret

income strategy works....

It was April of 1993. Coca-Cola was trading

around $39 a share. Warren Buffett wanted to
own Coca-Cola because he knew it was a great
company and that it had a lot of growth ahead.
But he thought $39 was too much to pay for the
stock.

Buffett determined that fair value for Coca-Cola

was $35 a share. And if you know anything
about Buffett, you know he's not going to pay
more that what he thinks a company is worth.

But you probably don't know what he did next to

make an easy $7.5 million...

In 1993, Warren Buffett was paid $7.5 million for

simply agreeing to buy Coca-Cola at $35 a
share.

That's it. All he had to do to collect a $7.5 million

fortune was agree to buy Coca-Cola at the price
he wanted.

The $7.5 Million “Buffett Loophole”

It shouldn't be too much of a surprise that an

investor as savvy as Buffett would come up with
a way to make a fortune by doing something he
already wanted to do anyway. That's why he's
one of the richest people in the world.

In the years since Buffett used this market

loophole to make a quick and easy $7.5 million,
thousands of savvy investors have raked in tens
of thousands of dollars a year using “Buffett's
Loophole.”

These “Buffett's Loophole” payments come in

cash — deposited directly into your brokerage
account. It only takes a few minutes to execute
a “Buffett's Loophole” trade. And once the cash
hits your account, it's yours to keep.

You can do whatever you want with the cash you

get — it's yours.
That's the beauty of the “Buffett's Loophole”
strategy: You can use it any time you want. All
you have to do is log into your brokerage
website and execute the transaction. Within
minutes, hundreds or thousands of dollars will
appear in your brokerage account.

It's a fully legal and accepted cnancial

transaction that thousands of savvy investors
use every day.

You may not even be aware that most online

brokerages offer “Buffett's Loophole” trades.
Most investors aren't. And your broker certainly
isn't going to just offer you such a quick and
easy way to make money.

But as I write this article, these “Buffett's

Loophole” payouts are available:

Apple is trading around $115 a share. If

you agree to buy it at $105, you would be
paid $1,690 in cash.
Microsoft is trading around $44. If you
agree to buy it at $43, you would be paid
$1,280 in cash.
 Facebook is trading around $93. If you
agree to buy it at $86, you would be paid
$2,450 in cash.
Netgix is trading around $99. If you agree
to buy it at $90, you would be paid a
whopping $5,000 in cash!

There are literally thousands of dollars on the

table, there for the taking with “Buffett's
Loophole.”

It really is one of the easiest ways to take regular

cash income out of the stock market.

Now let's explore exactly how you can start

collecting thousands of dollars in cash from the
stock market on a regular basis...

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Get Paid to Say Yes

In the examples I showed you above, you may

have noticed that “Buffett's Loophole” involves
getting paid cash for simply agreeing to buy a
stock at a lower price than it is currently trading.

How can you enter into such an agreement?

With a contract between you and the person that
owns the stock.

Such a contract would be pretty basic. It would

simply state that you agree to buy shares of
Company X at a speciced price within a certain
time frame. You get to choose the stock, you get
to set the price at which you'd be willing to buy
that stock, and you also get to choose the time
frame in which you let the agreement stand.

In other words, as the potential buyer, you're the

one in control. You get to set the terms. The
other guy (or gal) just pays you.

Sound pretty good?

Well, what if I told you that millions of these
contracts trade every single day the stock
market is open? And they trade on an exchange
exactly like the ones that stocks trade on?

It's true. These contracts are called “options

contracts.” And options are simply agreements
between a buyer and a seller that a stock
transaction might take place at a specicc price
on or before a specicc date in the future.

Now, before you throw up your hands and say

you'll never trade options, let me just say a
couple things...

First, I know you may have heard that options

are incredibly risky because the vast majority of
them expire worthless, saddling the buyer with
losses. Well, it's true — if you buy stock options
in an attempt to predict a stock's price
movement, chances are you're going to be
wrong.

But the “Buffett's Loophole” strategy is not about

buying stock options; it's about selling them.

When you sell options instead of buy them, you

turn everything you may have heard about
options around.

Instead of spending money, when you sell

options, you get money. And when the option
expires worthless, instead of losing the money
you spent, you simply keep the money you've
already been paid.

Now let's go back the Warren Buffett/Coca-Cola

example I used earlier. You may recall that Coca-
Cola was trading at $39 a share. Buffett thought
that was too expensive. He only wanted to pay
$35 a share. So he sold “put option contracts”
that stated he would buy Coca-Cola if the price
fell to $35.

The Coca-Cola share price did indeed fall to $35

within the time frame that was speciced in those
put options contracts, and Buffett gladly bought
the stock at $35, just as the contract stated
(quite literally, the shares were “put” to him).

And those Coca-Cola shares have become one

of the best investments he ever made. He's
never sold one single share.
Please understand that when you sell put option
contracts, or “puts” for short, you are agreeing to
buy stock. Of course, you'll be buying the stock
at a lower price than when you sold the put
option. But the fact remains that you must be
willing to buy shares in individual companies to
use “Buffett's Loophole.” (Remember: You get to
set the price at which you're willing to buy.)

In fact, actually buying the stock is the worst

thing that can happen when you sell put options.
That's right; the biggest risk you face when
selling put options is that you will have to buy
the stock.

And of course, you can always turn right around

and sell it if you don't want to keep it. (Though
like Buffett, we will only be using companies that
are great long-term holds.)

Now is the Time

As you know, stock prices are down a lot over

the last month. That means it's the perfect time
for put option selling. Stocks are likely to rally
higher, and the moves you make now will put
instant cash in your account.
But of course, stocks don't always do what we
expect. So if stocks fall a little further, put
options can help you be in position to scoop up
some real bargains. Either way — if you just take
in some extra cash, or if you buy a quality stock
at a steep discount — it's a win-win.

If you want to learn a little more about this

powerful income strategy, you can read all about
it here.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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 also contributes a weekly column to
the Wealth Daily e-letter. To learn more about
Briton, click here.

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 Warren Buffett once told investors at an annual
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Buffett later went on to talk about one incredible

advantage that average, smaller investors have
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