Lee Lowell’s “Instant Money Codes”

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“They Scoffed When I Said You Can Collect Instant Cash Just By Punching in My Simple “Money Codes”…

“But After 18 Months of Watching the Money Pile Up…”

That’s how the ad opens for Lee Lowell’s Instant Money Trader, a trading newsletter that gets pushed pretty heavily from time to time. It’s all about some kind of special codes that you can use to extract “instant cash” from the market every month. he goes on:

“To this day, I’ve never found a way to make money easier or quicker…

“I just do a little research, find the right code, punch it in and within seconds, the cash shows up in my trading account.

“Cash that’s mine to keep… and spend as I please.

“So, quite frankly, I was a little surprised to hear more regular investors weren’t using it.

“Why, after all, wouldn’t you want to pick up a few hundred dollars here… a few thousand there… when the money’s sitting right there for the taking?”

The ad goes on to describe the strategy some more, reassuring one and all that this isn’t some internet scam:

“Just exactly what are these people doing where they can go to their brokerage account, punch in a few numbers and have money show up in their account – within a minute?

“It’s important to know that people using this strategy aren’t buying stocks. Nor are they buying options, bonds, treasury notes, or actively buying any ‘investment’ at all.

“They’re not selling a product or service or getting involved in any Internet business.

“There’s no effort or special knowledge needed (though I’ll teach you everything I know)….

“Now I know what you might be thinking: ‘Lee, it can’t be that easy. Nobody just “gives away” cash.’

“Amazingly, they do.

“No ‘one’ person in particular, mind you.

“The money you get from punching in these codes comes from a big pool of people – everyone from ordinary investors to big institutional traders.

“And they’re happy to pay out the cash because they’re looking to make money on the deal too. (More on that later…)

“The big difference is: The folks who are paying you may or may not get their money back…

“But you keep the money regardless. In fact regulations require:

“Once you type in your code and the cash reaches your account – the money you get is yours to keep.”

I won’t bore you too much by sharing more details today — you can go read the ad here if they still have it online — but this is essentially just what he says it is: a relatively low risk, steady way to generate cash in your brokerage account. There’s no secret to it, though, and no free lunch — the strategy is selling options, and in this case selling put options.

If you’re unfamiliar with the basic concept, options are derivatives — they derive their value from the price of something else, in this case from a stock or ETF. A call option is a contract that you can buy or sell, giving the seller the right to buy 100 shares of a specific stock (or ETF) at a specific price (the strike price) on or before a specific date (the expiration date, usually the third Friday of the month of expiry). A put option, which is, I think, what Lee Lowell is talking about here, is the opposite — it represents the right to sell a stock at a set price on or before a specific date.

Most small investors (myself included) tend to be buyers of options rather than sellers — we buy put options for downside protection if you have a big position in some stock that you don’t want to sell, for example, or we buy call options to speculate on a stock moving higher. The advantage of options for buyers is that they can bring huge leverage to your portfolio — you can buy exposure to a fast moving stock for far less than it would cost to actually buy the stock.

Of course, the disadvantage for buyers is that most options buyers lose money (or at least, this is what I’m told — I have no way of telling if that’s really true). It stands to reason — many options contracts expire worthless, so if you want to speculate on Apple stock continuing its huge run and think AAPL will be over $350 by January it will only cost you $3 per share to buy a $340 Jan. call option … but you probably really know, in the “book learnin’” part of your brain, that the odds are good that AAPL won’t go up 50% in the next nine months, and that you’ll lose that $3.

So that’s where folks like Lee Lowell come in — they sell options to cater to those who want to speculate or buy downside protection. And from what I hear, Lowell and his compatriots, like Keith Fitz-Gerald with his Geiger Index, sell put options that are pretty far out of the money, for close-in months. So in the case of Apple, for example, they might sell the May $200 put option. This would mean that you’re betting on Apple either staying near the current price (it’s at $235 right now) or going up, which would mean that the put option should expire worthless and you’d get to pocket the money you got from selling that put.

Of course, when you sell a put that the market believes is pretty unlikely to be “exercised” like this (that’s what it’s called when the buyer of an option “exercises” their right to buy — or sell, for puts — the underlying stock from — or to — the option seller), you don’t get paid that much. For that particular AAPL option, for example, you’d only get $1.38 per share for promising to buy the stock at $200 anytime before the May expiration. Options generally trade on blocks of 100 shares of stock, so for one options contract you’d get $138 (minus commissions) and take on the obligation to buy 100 shares of AAPL at $200 each if the shares happen to fall below that point before options expiration.

There is a cost, of course — your broker needs to know that you’re “good for it” and can in fact buy those 100 shares of AAPL (meaning, you have the purchasing power in your account to spend $20,000 for each options contract you sell. In some cases this can be done with margin, in which case you effectively put up other stock that you hold in your account as collateral, and in some cases the put options you sell will be cash-backed, meaning you actually have that $20,000 in your account.

So in one way of looking at it, you’re taking relatively little risk and in exchange you’re being paid $138. Nice, “free” income. But of course, if some horrid news about Apple comes out in the next two months, or if the market crashes and the stock gets clobbered, you’re on the hook — if the stock falls to $150 you still have to buy it from someone for $200, so in that case you’ve taken in $138 and effectively lost $5,000 ($50 per share difference for those 100 shares). That’s the underlying risk.

Selling put options as a way to buy stock is also something that a lot of folks do — and there are certainly cases where it makes a lot more sense than just posting a limit order in your brokerage account. If you were going to put a limit order in for 100 AAPL shares at $200 and leave it there, hoping to buy the shares at a price you think is a bargain, you might as well just sell the put option instead and get paid for your “limit order.” Of course, it gets a little more complicated if something awful happens — if you notice one night that Steve Jobs is looking extra sickly again and you no longer feel confident in the stock, you can just cancel your limit order, but if you wanted to back out of a put option you had sold you would have to buy it back to cancel it out, and if lots of other folks are also starting to feel sickly about the stock at that time you might have to pay more to buy back the option than you received when you sold it.

That’s the five-cent explanation — selling put options, whether “naked” puts that are sold on margin, or cash-protected puts that are sold with your cash balance ready to buy the shares if need be is not a way to get rich quick, but it can certainly be a way to steadily build up your cash … unless you happen upon a terrible stock that collapses overnight, as some have been known to do, and your year’s gains from selling puts may be wiped out (and more). You can read more of Lowell explaining this process (without as much of a sales pitch) here in an older series of articles, and this guy at TradeKing also does a nice job of succinctly explaining put sales (and the synthetic version of call options trading that gives you similar exposure).

And, of course, if you’ve got a way with words (or not) and want to throw out your two cents (or five, or ten), that’s why we have the friendly little comments box below — let us know what you think about selling options for steady income (and yes, if you’d like to chat about the more conservative covered call-selling strategy, where you own a stock and sell calls against it, that’s A-OK with me, too).

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31 Responses to Lee Lowell’s “Instant Money Codes”


  1. I have commented on this strategy before, and I expect I will once again have my head handed to me, but here goes. Selling puts is an excellent way to generate cash. But contrary to your statement, selling covered calls is not a "more conservative" strategy. The risk profile–the amount you stand to gain or lose vs the price of the underlying stock–is identical. In either case you must have funds to cover your risk–in the case of covered calls by owning the stock, and in the case of selling puts by an equivalent amount of cash or securities in your account. It is true that some brokers will allow one but not the other, but this doesn't change the identical nature of the risk. In addition, from the studies I have seen puts generally command a higher premium than calls, so you get a bigger "bang for the buck" with puts.

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  2. No debate on the risk profile from me — my statement is based largely on my experience that most covered call sellers do this to eke out more income from long-term stock holdings, and most put sellers I know sell “naked” puts on margin or fail to mentally account for the cash risk. The inherent risks may well be the same (I don’t know), but the behavior of many investors not always so.

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  3. I am doing DD on Lee's system with the intention to subscribe,i understand how it would work and how " easy " would be to make contrarian bets….
    gold going up sell puts on GLD ,50 days and 6 to 10 strike out,i can see how it could make money but i do not fully assess and understand the implied risk,i also think that selling options could be more profitable that buying then…..i would like to find a blog where people write and share how are they making money in the market…..is a jungle out there!! find difficult to believe that every body is fibing….I used to make good money "riding the charts" in the early days of FAS and FAZ i did well and had lots of fun then they made it too expenssive…..and i lost my cool and find very difficult to pull the trigger and even more diff. to carry a profit of more than 8k….yes place to talk/write about this experiences, can you help? Thanks Califa

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  4. Nassim Nicholas Taleb (The Black Swan) would probably be a buyer of those way out of the money put options.

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  5. I think that that Lowells ideas are to use this strategy with onlt "good, solid companies.". Companies one would not mind owning at a "cheap" price. You have to sell multiple option contracts to collect a decent amount of premium. This also requires more capital
    in your account in order to cover the sale of the puts. I think it's a good strategy, just understand risks, be willing to set aside a portion of your portfolio for the strategy and have an EXIT strategy if you don't want to own the stock.

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  6. lets face it if you're selling puts on expensive companies like AAPL you really need to buy matching number further down say the 150's just to lower your margin requirement and as another pointed out define your risk. I did a May put spread the other day with a 67% roi.
    I like those types of plays

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  7. I've subscribed to this product since last summer and have sold probably a dozen positions. None have been exercised.

    Lowell will generally recommend far out of the money strikes at prices that are unlikely to be reached, and frankly if they were I wouldn't mind owning the stock at that price. Looks for strikes in the 15-30 range, time until expiration of 1-3 months and the premiums have ranged from .25 to 2.00. He looks to buy back the position once 75-80% of the premium has been captured. Has only recommended S&P 500 stocks so far. Given the strike, premium collected, time until expiration and required margin to put on the position the annualized return of any given trade is usually in the 35-50% ballpark.

    Not many recommendations over the past couple months other than to buy back a couple positions, though there was a new one March 30. Lowell looks for pullbacks in the market, and generally in up-trending stocks, to increase volatility which increases the premium.

    I am very pleased with the service so far.

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  8. The margin requirements vary, but for most stocks that you want to sell put options for, the margin requirement is: (20% of strike price + price of option minus the amount it is out of the money) OR (10% of the strike price + price of the option). You also have to get your broker to upgrade your account to a Level 3 options trading account.

    So, if you sold puts on a stock at strike price Y, the current price of the stock is Z (Z greater than Y), and the option premium is X, your margin has to be (.2Y + X – (Z-Y)) OR (0.1Y+X), whichever is greater. This is the minimum amount of uncommitted cash that has to be in your account to place the trade. In some cases, the margin amounts are higher. For example, to sell options on AIG, the minimum margin is 50% of the strike price + option premium minus the amount it is out of the money.

    During the last 12 months, this strategy has worked spectacularly for me. I have had a couple of near-disasters with highly volatile companies like Garmin that have very attractive premiums, but move by 20-25% sometimes, even when not around earnings. When that happens, an option that wasn't in-the-money sometimes gets in-the-money, exposing me to the risk of a margin call and to being forced to buy the stock. Remember that when you sell an option, being in-the-money on that option is a bad thing, since the guy you sold it to can exercise it, and sell you shares at a price higher than its current market value.

    When I am at risk of either facing a margin call or the options going in-the-money, I typically then roll the options forward, i.e., I buy back the near-month option and sell a further-out month option at a lower strike price so the new option is now out-of-the-money. I've been lucky in recent months that in no situation have I eventually had to buy the stock even after I have rolled the option forward.

    As the market starts to look increasingly stretched, I am also buying protection by buying options on securities that trade inversely to the market (such as SDS).

    I have been lucky so far, but have no real confidence that this strategy will work forever until it has been tested in a nasty bear market.

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  9. The premiums on most put or call options are not very attractive on most "good solid companies," (word choice from one of the posters above.
    When we find that situation, the volatility has been reduced, which may favor put selling. But beware! This market, as any other, can turn … As far as Apple is concerned, my price target for buying the stock has been under 190, (last purchase 182). Then it makes it easy to sell calls on the stock. If the price catches up with you, simply roll the option out – - say to July. Meanwhile, don't forget to protect your gain. The Option Zone suggests that one should consider the AAPL April 230 puts @ $4.65 or the May 220 Puts @ $6.25. Those prices are definitely subject to change!

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  10. Don't bother subscribing and giving Lowell your money. He outlines this (naked put selling) in his book:

    "Get rich with options : four winning strategies straight from the exchange floor" / Lee Lowell.

    Your local library should have it.

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  11. I second Sydney's comments, before subscribing to lowell's newsletter, read his book first. I have and I now sell options on the Australian market, not as big or liquid when compared with the US but if you look closely enough, you can find some juicy trades even when they are way out of the money, with options trading volatility is great for the buyer most of the time but can also be great for the seller if he times it right (much harder to do) that's why I only follow 2-3 stocks I really like. My strategy for the last 6 months has been to stick with the sectors I am bullish on (gold, energy, agriculture) and pick the best stocks in those sectors. My last trade was on lihir gold, sold 4 call contracts with a strike price of 3.25 when the stock was trading around 3.00 after I had bought them at 2.75. The stock is now sitting at over 4.00 after a bid by newcrest mining. As you can see while I will most likely make a profit at the end of expiry I have also put a limit on the profit I can make.

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  12. It is true that in more than 70% of the cases, the winner at the expiration of an option contract is the seller. The calculation of an option’s price take several variables into account in addition to the obvious underlying’s price variations. Some of them like the time remaining to expiration or the implied volatility of the underlying are influencing its price more than others (like the current risk free rate or underlying’s dividend). Therefore, when you sell an option, time is on your side since each day passing will reduce the price of the premium. It is also better to sell an option when the underlying’s volatility is high, you will hence cash in a “bloated” premium. The best case scenario to buy options will be when you expect a rising volatility in a short period of time (2 months max.). In that case, at the time of purchase, the volatility is not expensive and set to increase and the time value is still affordable. Also, the profit should be taken within the next 3-4 weeks max. otherwise you will need a lot more volatility to compensate the loss in time value. Remember: it’s all about your expectation about volatility! To summarize: You expect a rising vol. with an increasing underlying’s price in a short time span = buy a call. You expect a rising vol. with a decreasing underlying’s price in a short time span = buy a put. In all other cases, it’s better to sell options and cash the premiums!

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  13. As in all cases with the above as well as other trading strategies the selection of the stock, option strike, and expiry combined with good execution and risk management (knowing when to exit), is critical. Thus, the vast majority lose money even when presented with the key to open the door to the room with the hen that lays the golden egg.

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  14. Thanks, guys for pointing out the obvious — which I naively missed — that this dude's "method" is all about options — which I reflexively stay the hell away from …

    Sounds way too smooth when one fails to carefully consider the loss potential.

    And as one of you pointed out above, it ain't all that tough for most folks to read a basic book re. options and decide if they have "the right stuff" to deal with option puts.

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  15. With my broker, I just give them a "Do not exercise" order and sell the option back. Make (or lose) $ without ever owning the stock even at expiration ( unless of course you plan to). It amazes me that simple stock market strategies get promoted as some kind of "secret".

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  16. Please explain to me the difference between your stated"more conservative" covered call statement and selling puts-selling puts is absolutly no more risky than covered calls-its basically the same thing. Please explain or this shows you have no idea what you're talking about.

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  17. Mr Lowell talks about Return On Margin (ROM). Spreads making about 20% ROM in less than a month.
    Keep buying the options Guys it feeds the sellers.

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  18. Would it not make the best sense to buy his book, or learn about options, then track a Monopoly money account for a few months, and if you “get it” and are making money, then jump in? That’s what I plan to do. I remember back in the 80′s my broker used to do this for me weekly. Didn’t make tons of money, but never lost. Probably got me about $1,000 one year and I had a total of about $15,000 in my account. I know it works, but I don’t understand it … so I need to get educated.

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  19. Instant money system is fun to play with if you have about 20k and a margin account
    that lets you trade naked put options. I wouldn’t recommend purchasing the sytem
    unless you want something to play with. Your money would be better spent by
    putting it into regular equities. If I had all the money I’ve spent on trading systems, strategies, brokers, newletters, etc. I could have probably retired. I am not anti IMT
    just experienced. My biggest gain to date is in physical (I own it silver).
    Have fun and don’t get to burned.

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  20. I saw Lee’s ad for Instant Money Trader today, 3-18-12, …subscription for $850, and if not satisfied within 60 days,then $765 returned.
    This way, Lee makes a minimum of $85 per subscription, if people cancel, and $850 per year, if they continue.
    Suppose 25 people sign up per month who cancel, he has made 25 x $85 = $2,125 from those cancellations that month. Just from the cancellations!

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  21. Lee Lowell stwategy is siwey. Yu need too pwenty of money, wike $100,000 to even make ane money at all. if yu sel option of say 31 cent, you make onwy $31, but have to have account size of tousands of dowaas for just this $31. Annd if you want tu make $310 for this option then yu have to have many moe money in you account, incwuding for most peeple using maagin. vewy siwy stwategy. unless yu bill gates, or waawen buffet.

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  22. I cancelled my subscription to Instant Money Trader 3 days ago. I didn’t receive an acknowledgement, to assure me that my cancellation was received. I didn’t know your subscription is into options which is a no-no to me. Please send me your kind response ASAP. Thank you

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  23. As someone who has never dealt with options as yet, can someone tell me what these ‘codes’ are, and their connection with options. Thanks!
    -Rob

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  24. The guy’s still pushing it. Sorry I don’t understand what he’s trying to do, even w/the above info. I won’t give just anyone my bank account and that sounds like what he’s after.

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  25. I think the risk is like this:
    1. You are a conservative investor with 50,000 in bond and low risk securities and 50,000 spread about equally over 10 stocks at about 5,000 each.
    2 You buy only 10 $25 dollar puts corresponding to one of Lowells codes, for instant revenue of $250.
    3. Chances are your put is not call, so you make only 0.025 profits–miniscule to the portefolio.
    4. But if called on a typical $90 stock, you’re forced to buy $1000 shares, or $90,000.
    So you have to scramble fast and furious to sell all your securities, and now your portefolio is 90% in only one stock. Sure, your stock is relatively cheap, and of good qualiity, but you just took a wrecking ball to the conservative design of the portefolio, probably selling your other stocks are importune prices.

    5. All this for a 0.025 percent gain.

    6. In my opinion, this is nuts, even you have the money of a Buffet.

    Options have their place, but this is not it. I understand all this as very obvious and with minimal knowledge of options, and never traded them.

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  26. Ah, yes. But the trick is knowing WHEN to sell them. Timing is in part based on technical analysis, volatility etc… All in all it's a great way to scale into a long stock position that can then be traded "around". Fun stuff all this. Don't forget spreads,… the added protection defines/limits risk, allowing one to sleep at night.

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  27. Until recently I always traded spreads–most often OTM iron condors. But some time ago my broker [hope it's OK to plug brokersXpress here] established portfolio margining. If you qualify it allows you to bring in the same amount of cash by selling fewer number of options "naked," thereby limiting risk the same way spreads do.

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  28. I'm wondering what the size of your brokerage account should be to make this service worth while. $25k? $50k? Especially considering the cost of the service ($750) and brokerage fees.

    Also, does Lowell suggest options for "reasonably affordable" stocks? (I wouldn't consider AAPL reasonably affordable. The required margin on selling a put option on a stock like AAPL would be too great).

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  29. Don't know of a particular size, but I would want to hold enough cash to back the puts, and you want to sell large enough positions to minimize commissions, ao it depends on your comfort level and broker.

    I don't imagine Lowell would often target higher priced and popular stocks like AAPL, that was just my example.

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  30. John, I typically use that language because many folks who sell puts are doing so "naked" without the cash to back those sales — which means they're using margin, which is riskier than cash investing.

    In a more "investor psychology" way of putting it, I also think folks who sell cash-backed puts sometimes have the tendency to consider the cash that they have backing those puts as part of their "cash" position, despite the liability attached to that cash — which can give a false sense of "low risk".

    Certainly cash-backed puts and covered call selling have the same basic risk parameters, but that doesn't mean investors treat them the same way in their account, and my experience with folks I've communicated with is that covered call sellers are more apt to eschew margin leverage. As with all option trading systems like this, discipline is absolutely key to get any kind of consistent performance.

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