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A M O T L E Y F O O L P R O S P E C I A L R E P O R T

Motley Fool ProJune 2010

5 PRO stRategies —

Getting Wealthy in a“Nowhere” Market



2 Motley Fool PRO Special Report — June 2010 pro.fool.com

News Flash: Stocks have been at for 12 years! There’s good reason to

believe the next 12 years won’t be much better. Here are ve strategies

you need if you plan on reaching your goals in this new world order…

It’s June 2010, and the S&P 500 is trading exactly where it traded in October 2009, eight months ago. And that’s nothing…

The S&P 500 is exactly where it was in 2004. Go back even further, and we’re at prices rst hit in 1998! That’s right: After 12

years of sickening volatility, the stock market has gone nowhere.

Dead at! If you had invested in stocks in the roaring ‘90s, hoping for the typical market “double” over the past decade, you

were sorely disappointed.

What’s done is done. What happens next?

Unfortunately, there are plenty of warning signs that we’re in for more of the same. With government debt at unsustainable levels in

many Western countries, and with Baby Boomers racing toward retirement, years of slow growth may be the best of what’s in store

If history is any guide, that means mediocre returns for stocks at most, along with continued volatility — frankly, not a pretty

long-term picture, especially for investors headed toward retirement.

Fortunately, there are sensible strategies that can help you make money in volatile but range-bound markets — strategies that can

make you big money if stocks do rise, and defend your wealth and earn income and prots in declining markets, too.

In short, as we head into what may be another “lost decade,” you do not want to rely on a rising stock market to reach your long

term nancial goals. You need something better…

I’m Jeff Fischer, advisor of Motley Fool PRO. Come 2020, I intend to be much wealthier than I am today. That’s why, in October

2008, with the help of Motley Fool co-founder David Gardner, I founded Motley Fool PRO — a unique portfolio investmen

service, with the goal of helping you join me on that journey to wealth.

In this special free report, you’ll discover ve strategies that I use regularly to help my Motley Fool PRO members consistently

make money in up, down, and even at markets. I’m convinced they can help you prot, too — whichever way the market goes

over the next 10 years... even if stocks go absolutely nowhere fast.

5 PRO Strategies — GettingWealthy in a “Nowhere” MarketBrought to you by Jef Fischer

table of contents

5 Strategies to prot in the NEXT “lost decade”

PRO Strategy #1 — Write Covered Call Options

PRO Strategy #2 — Write Put Options

PRO Strategy #3 — Write Covered Strangles

PRO Strategy #4 — Buy Dividend-Paying Stocks

PRO Strategy #5 — Commodities, Shorts, and More…

A Bonus Idea: Why not prot rom volatility?

Intrigued? Join Us to Prot in Any Market



pro.fool.com Special Report — June 2010 Motley Fool PRO 3

5 Strategies to proft in the

NEXT “lost decade”

pRo stRategy #1 — WRite coveRed call options

A conservative, income-generating options strategy suitable

— even for retirees — you can write (or sell) covered calls

whenever you own 100 shares or more of a company’s stock — so long as options trade on that stock.

Essentially, you are selling someone the RIGHT to buy your

stock from you at a predetermined stock price by a predetermined

expiration date. If the stock doesn’t reach your strike price, you

earn income (which can be signicant, often 5% or more in a few

months), and you get to keep your stock, too.

Even better, you can then go on to write (or sell) new calls

to generate even more income. If the shares do increase

above your strike price, you still keep the option income, and

you simply allow your stock be sold at the strike price for a

larger total prot.

One of the best-kept “secrets” among conservative investors,

there’s little not to like in this proven strategy — so long as

you’re comfortable with the strike price (or sell price) that

you choose. And while it’s true that, if the stock moves much

higher, you may miss some upside, if the market is ultimately

sideways (as I expect it will be), this isn’t a large concern.

How about a quick example…

As a rule, you want to use a covered call strategy on solid

blue-chip companies with stable stocks and modest downside

risk. And use it again and again. Consider computer chip giant

Intel (Nasdaq: INTC), which recently traded at $21.

You could buy at least 100 shares of Intel common stock,

and then write (it’s called “sell to open”) one call option for

every 100 shares you buy. Call options with a $23 strike price

and expiring in October recently bid more than $1 per share

— so you’d receive a nearly 5% payment on this giant blue

chip stock in just four months.

You’d also continue to receive Intel’s dividend, and with

the covered calls, your potential net sell price comes to $24

or 14.2% higher than today’s price. That’d be a fantastic

return in four months.

Meanwhile, you have nearly 5% downside protection thanks

to the covered call income, and if Intel isn’t above your sell

price by expiration, you earn income and can write new calls

on your stock .

As you can see, writing covered calls on strong companies with

solid business fundamentals is a great way to earn income whether

you’re hoping for stock price appreciation or not — and a strategy

we use regularly to great effect at Motley Fool PRO.

In just the past few months, we’ve realized 100% income

gains with covered calls on:

• Cameco (NYSE: CCJ) — locked in 100% gains!

• ProShares Short S&P 500 (ETF: SH) — locked in 100%

gains!

• Lindsay (NYSE: LNN) — locked in 100% gains!

pRo stRategy #2 — WRite put options

With the stock market range-bound, it’s more important than

ever to buy stocks at attractive prices — near the lower end o

the trading range. By writing put options, you can set yourselup to do exactly that, and get paid income if your ideal buy

price doesn’t come along .

Using Intel at $21 as our example again: Say you wanted

to buy shares anywhere below $20. You could write (“sell to

open”) one put option for every 100 shares you are willing to

buy below $20.

options Quick facts

A stock option gives its owner the right to buy or sell a stock at a set price (the strike price) by a set expiration date. Youcan buy or write (sell to open) option contracts. The option buyer pays or the option and has r to make a stock

trade, while the option writer gets paid to write the contract and takes on a potential trade (the opposite

side o the buyer’s trade). Each option contract represents 100 shares o the underlying stock. Options are usually only

exercised (turned into a stock transaction) at or near expiration.

At Motley Fool PRO, we view options as excellent portolio tools or managing risk, buying stocks cheaper or selling

higher, hedging, shorting, generating income in any market, leveraging gains, and more. Watch your inbox or a private

announcement when we open Motley Fool PRO to a strictly limited number o new members on June 22, 2010.




Intel’s $20 puts expiring in October recently would pay you

about $1.20 per share — that’s a full 6% income yield in less

than four months. If Intel is below $20 at expiration, you get

to buy shares at a net $18.80 — a great entry price. If Intel is

still above $20, you earn the option income (at Motley Fool

PRO we shoot for more, but we’ll take 6% in four months any

day!) and can write puts again for another payment .

As you can see, with a strategy like this, you no longer

have to care whether your stocks go up or not. In fact, you’re

thrilled if Intel stays in the low $20s for years (as it generally

has, actually, for the last eight years. Just imagine the options

income you’ve been missing out on!).

Just remember, when you write puts, you need to be willing

and able to buy shares of the stock if it declines, but you

always keep the put income. Even better, once you buy shares,

you can always consider turning around and writing covered

calls on them.

That’s why, at Motley Fool PRO, I only recommend that

you write puts on top-quality stocks that we are comfortable

owning for the long run — and these are the only positions

I maintain in my $1 million real-money Motley Fool PRO

portfolio (more on that just ahead).

pRo stRategy #3 — WRite coveRed stRangles

Now imagine doubling your option income on stable,

respected stocks like Intel, which we just discussed. No need

to imagine when you can do it. It’s as simple as combining

our rst two strategies, writing covered calls and writing puts

at different strike prices. PRO strategy #3 is called a covered

strangle, and it’s ideal for range-bound markets like this one.

With this strategy, you want to start with half of a desired

position in a stock — half of what you’d buy to make it a full

position. You then write covered calls on the shares you own,

and write puts with the intention of buying the other half of

your shares cheaper.

Again, let’s look at Intel. Here we would buy 50% of our

desired shares around $21. We’d then write $23 covered calls

(netting us about $1 per share) and also write an equal number

of $20 puts (netting us another $1.20 per share) expiring

the same month. We just received around $2.20 per share in

option income (a more than 10% yield on the capital we spent

to buy the stock), and we set ourselves up for a large prot!

Remember, when you write CALLS, you’re obligated to sell

a stock you already own if it appreciates to your strike price.

When you write PUTS, you’re obligated to buy more stock if

the stock price falls. When you write both calls and puts on

the same stock using the same options expiration date, only

one of these two outcomes is possible — and often neither

especially in a at market.

Back to Intel: Including our $2.20 in option income, come

October, we’ll be lined up to sell our original shares at a net

$25.20, but only if Intel is above our $23 strike price (See“Intel Goes Up” chart on next page).

Or, we’ll be buying more shares at a net $17.80 if Intel is

below $20 (See “Intel Goes Down” chart on next page)

Our “strangle” provides a great net sell price on what we own

or a tasty buy price on more shares. If the stock is anywhere

between those two prices ($17.80 and $25.20), we can close our

options early for a partial prot, with no other action required.

Finally, if the stock is between $20 and $23 (See “Inte

Stays Flat” chart on next page), both options expire as ful

income gains — we keep the stock and can do the trade again

At Motley Fool PRO, we are using this ingenious defensive

strategy to generate generous income ows, providing our

members ample upside and signicant downside protection. And

again: Range-bound stock market? We say, great! Bring it on.

pRo stRategy #4 — buy dividend-paying stocks

An even simpler way to build wealth in a at market is

to ferret out strong companies with consistently growing

generous, and safe dividend yields. At Motley Fool PRO

we’ve bought a handful of companies that yield 4% or more by writing puts to buy the stocks cheaper in some cases, we

also earn signicant capital appreciation.

As the next lost decade limps along, you should consider

owning high-yield stocks as one sleeve in your portfolio

These don’t need to be boring! These days, many high-yield

stocks offer capital appreciation potential, too.

With steady dividend income, you can reinvest the funds

save it, or use it. Dividends add up! And now that you know

about covered calls, you can consider owning some high-yield

stocks, while writing covered calls on them for additionalincome. This extra cash ow can really add up, even in dead-

at markets — it can be a fantastic ination hedge, and that’s

why so many retirees do it.

Of course, chasing yield can be a dangerous business

That’s why, for our Motley Fool PRO $1 million real-money

portfolio, we invest exclusively in top-quality companie

with strong business and a proven history of defending and

consistently increasing their dividends over time.




pRo stRategy #5 — commodities, shoRts, and moRe…

Exchange-traded funds (ETFs) have taken the market by

storm and are a great way to cash in on short- and long-term

price movements in commodities, currencies, and sector movements. But not all are created equal.

Even so, with the right ETFs, you can safely and protably

invest in commodities from silver to gold, currencies from the

Yen to the Brazilian Real, and xed-income securities. They

can even be used to short the market — i.e., prot when stock

prices decline.

Such strategies are particularly useful when stocks are at

or down, as I expect they will be for some time to come —

as many commodities, currencies, and even bonds will tend

to increase in value. With ETFs, you can expose yourself to

these movements in your portfolio easily and cheaply.

At Motley Fool PRO, I regularly advise my members to

invest in commodities, currencies, and “short” ETFs — with

fantastic results. To juice our returns even more, we will even

buy and sell options on ETFs when market conditions dictate.

Again, however, it is buyer beware! Especially when it

comes to leveraged ETFs (funds that try to move at least twice

as much as their investment class each day). Our experience is

Intel stays flat — We pocket premium and keep the stock! J A N U A R Y 2 0 1 0 — O C T O B E R 2 0 1 0

JAN FEB MAR APR MAY JUNE JUL AUG SEPT OCT

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Intel goes down — We pocket premium and buy more, cheap! J A N U A R Y 2 0 1 0 — O C T O B E R 2 0 1 0


23

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Intel goes up — We sell at a nice profit! J A N U A R Y 2 0 1 0 — O C T O B E R 2 0 1 0


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that, due to the mathematics involved, they do not perform as

expected, especially in choppy markets.

a bonus idea: Why not pRofit fRom volatility?

Listen, I’m convinced that range-bound volatility is here to

stay. Either way, as the new decade begins, it will pay more

than ever to track the market’s measure of volatility — and

worry — commonly called the VIX index.

At Motley Fool PRO, we follow the VIX closely, knowing

that when the index trades above 40, fear is rampant in the

market — and writing options and buying high-quality stocks

are your surest, safest moves to build wealth.

When the VIX trades below 20, however, investors are

becoming complacent. At this point, buying defensive options,

shorting selectively, and selling fairly valued stocks give you the best shot at building long-term wealth (See VIX chart below).

etf Quick facts

Exchange-traded unds (ETFs) are baskets o stocks, not unlike mutual unds, or targeted single investments like

commodities or currencies, that trade like stocks on the exchange. Many have low ees — well below 1% per year — and

are as easy as stocks to buy and sell.

Many ETFs are designed specifcally to move counter to the stock market — making them a great tool or profting in

down markets.

At Motley Fool PRO, we view ETFs as excellent portolio tools or managing country and currency risk, hedging against

ination, and profting rom alling stock prices. Watch your inbox or a private announcement when we open on Motley

Fool PRO to a strictly limited number o new members on June 22, 2010.

The deceptively simple VIX gauge has tracked investor

sentiment exceedingly well since its launch in 1990 — and

strategies guided by the VIX have been extremely successful

Our Motley Fool PRO members are among the smart money

who never take their eyes off of this invaluable indicator.

intRigued? Join us to pRofit in any maRket

Faced with a high probability of a range-bound stock marke

for years to come — or, at best, a decade of modest, grinding

returns — we’re not giving in. No, we’re looking to prot.

In this report, we’ve touched on ve Foolish strategies that

we know can complement and enhance the performance of any

long-term stock and options portfolio. With these strategies and

others, we’re building wealth for Motley Fool PRO members

with much less volatility than the overall market.

And we’re not relying on rising share prices to do it! We

1990 1995 2000 2005 2010

40

20

S&P 500 Volatility Index (VIX)1 9 9 0 — 2 0 1 0




hope that you found this special report interesting and helpful.

On June 22, 2010, we will open Motley Fool PRO to a

strictly limited number of new members to follow along in

real time as I actively manage a $1 million long/short portfolio

made up of stocks, options, ETFs, and other sophisticated

investment vehicles.

This is real money — $1 million invested by The Motley

Fool. And not only are you invited to trade right along with

me, you have the opportunity to trade rst . That’s right, you

can front-run my trades.

Though please be aware: Due to high demand, we rarely

open Motley Fool PRO to new members. This is the rst time

the service has been opened since January and will be your

nal opportunity to join this year.

Watch your inbox for your personal invitation on June 22,

2010. Until then, best of luck with your investing.

Kindest regards!

Jeff Fischer, Advisor, Motley Fool PRO

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