Lee Lowell’s “Instant Money Codes”

By Travis Johnson, Stock Gumshoe, March 30, 2010

“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.

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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 happ