When the world looks bleak, the skies darken, and the locusts appear to be swarming on CNBC, we can always count on one thing: Newsletter editors will be trying whatever they can to convince you that they see the way forward, or that they have a safe haven for your money.

Karim Rahemtulla is no different than most — he’s teasing us today with an investment idea that will guarantee that you get paid, and who doesn’t want to see something like that these days? The newsletter he’s trying to sell is called Strategic Income, one of many letters from Rahemtulla, and from the vast Agora universe in which he toils.

Is it new? Innovative? Dramatic? Probably not for many of you … but there is a “there” there, even if it’s buried under a pile of marketing manure. I’ll try to explain it for you.

First, let’s see how Rahemtulla sells this. He has invented a new term for us, he’s calling this investment the “Surety Income Certificate” — no such thing exists, of course, but this is part of a long tradition, you have your copywriters devise a term that captures the essence of what people want, with some tenuous connection to reality … and then you charge subscribers to find out what the heck they mean when they say “Surety Income Certificates.”

I’ve written about this kind of “invented term” marketing dozens of times — whether you talk about California Overnight Dividends, or Secured Investment Contracts, or Dark Equities … there are real investment strategies buried under the hyperbole, but we, as customers of these newsletters, clearly respond better to mysterious sounding strategies.

And this strategy is somehow involved with income, and part of why Rahemtulla appends that “Surety” name to his invented term is that the income is “guaranteed.”

In his words:

“U.S. Gov’t Agency Declares: ‘This Investment Must Pay You $3,500 on October 16th.'”

And he pulls in some quotes from reputable sources to make it seem real:

“It’s a conservative strategy. You make money even if the market doesn’t rise.” -BusinessWeek

“Individual investors can benefit from this simple, effective strategy.” -Forbes

And like so many ads of this ilk, they make it seem like this is an odd strategy, one that you won’t have heard of because it’s not widely used or liked by brokers … and that only a really smart investor (like YOU) would be interested in this strategy:

“Just by reading this letter, you’re in a tiny minority…”

Rahemtulla tells the story of how he “discovered” these exciting “certificates” …

“I used to think the only way to pocket extra cash was with preferred stocks and bonds…

“But then I discovered a better, safer way to earn thousands in extra income each month…”

Is it just me, or does that sound a little bit like those “work from home” ads that want you to fill out medical forms or address envelopes from your couch? Don’t worry, that’s not what they’re talking about.

He also shares a quote from his mentor, some dude named “Henry” — “The key to making steady income in the markets is to forget about dividends.”

Henry went on to explain how using “Certificates” on blue chip stocks you could pull in much higher income than dividends …

“’You can trade them on thousands of blue chip stocks,’ he said. Fact is, instead of relying on stocks and bonds for income… you simply make a trade on underlying ‘Certificates’ to generate income.”

OK, so some of you probably already understand what these “Surety Income Certificates” are — for the rest of you, we’re just talking about …

Options.

Rahemtulla says as much later in the letter, without actually explaining what he means. Here’s what he passes off as an “explanation” …

“Actually, the trade you make – that puts cash in your account instantly – takes place in the options market. But with Certificates you do not have to buy risky call or put options.

“Long story short: a Certificate transaction MUST distribute the premium received directly to the consumer.

“In fact, brokerages are not allowed to keep this premium. But for years, only Wall Street’s elite has known how to take advantage of this mandatory payout.

“And even today, most brokers still keep these payouts a secret… and you certainly won’t hear about them in the mainstream media.

“That’s why I’ve created a research service to show you how to receive the biggest and best “Certificate” payouts available.

“You won’t need a new brokerage account or specialized knowledge. You can trade these certificates in your normal discount brokerage account in about five minutes a week. And what’s more, you’ll actually be reducing your portfolio risk by incorporating “Surety Income Certificates” into the mix!”

It is, of course, a little bit more complicated than that. If it’s an options trade that doesn’t involve buying “risky” call or put options, then it stands to reason that this must be a strategy for selling options.

So yes, this is yet another example of a newsletter that’s advocating a strategy of selling covered call options for income. Not much different than Jeff Clark’s various ads for his Advanced Income service (California Overnight Dividends, Transfer Dividends, Market Commissions) or Rahemtulla’s earlier ads for his “Secret Price Fixing Ring.”

What does that mean?

I’ve tried to explain this in my words a few times before — you can click on any of those articles above for my more extended thoughts on covered call selling, but it is, at the heart, a fairly simple exercise.

The authors of that “Forbes” article that Rahemtulla quotes (it’s actually an Investopedia entry, though it was published on Forbes.com) actually do a pretty good job of explaining covered calls — you can see that article here if you’re interested. Essentially, they explain it by saying that as an owner of a stock you have several rights, including the right to sell your shares. Selling covered calls against stock that you own means that you’re selling some of those rights, in a way that has been standardized by the options market.

The stuff about the “U.S. Government Guarantee” and the $3,500 payouts you should be getting from this? That’s entirely misleading. The ad tells you that your broker is not allowed to keep this money from you, and of course that’s true — just like no one else is allowed to steal your money, either, and just as selling a stock means you’re “guaranteed” to get the cash for selling those shares. If you sell something, of course it’s “guaranteed” that you get the money from that sale. All this language does is capitalize on your fear that everything is uncertain — if you sell an option, the money shows up in your account immediately and is cleared by the next day.

Here’s how Rahemtulla explains it:

“Making money with Certificates is as easy as one, two… That’s it, there’s no step three. It works like this:

1.You buy a stock. (Or you may be able to use one that you already own).
2. You perform a simple Certificate transaction that’s associated with the stock to claim your payout.

“That’s it. One, two… done!

“I guess technically you could say step three is the sound of money hitting your trading account. But that’s the fun part.

“And it’s the easy part. Because the money is sent directly to your trading account. You don’t have to do anything except wait a couple of minutes for it to arrive.”

So that’s all true, too — and he gives some examples of when you could have gotten — or may soon get — big payouts by selling covered calls against stocks like Sprint, Apple, IBM, Cameco, US Bancorp, and many more. He throws in some nice big numbers, payouts in the thousands of dollars, and then puts down in the small print that his figures are based on owning 1,000 shares.

So if you’re interested in getting $3,500, remember that you might have to own stock with a market value of $30-50,000 to sell calls for that much money (just an example, every stock and option price is different).

Selling a call option means you’re selling someone else the right to sell 100 shares of your stock before a set date in the future, and for a set price. What makes it “covered” is that you own the 100 shares and therefore are ready to meet your obligation (a “naked” call would be selling someone the right to sell stock that you don’t own, which usually means that your broker will require you to have cash on hand, or margin, to cover the cost of “covering” your end of the trade).

Rahemtulla says that he’s going to recommend his next pick for this service next week, on October 16, and that it will put $3,500 in your pocket. He gives no clues about which stock this might be, but here’s an example of what it could possibly be:

We’ll assume, just for fun, that the stock he’s thinking of is Wells Fargo. You can buy shares of WFC for about $31.50 at the moment. You buy 1,000 shares per his examples, so it will cost you $31,500.

Rahemtulla’s examples indicate that you can do this several times a year, so that means we’re dealing with near term options — options that expire within the next few months. You can buy and sell options that go out as much as two years or so in the form of LEAP long term options that expire in January 2010 or 2011, but most options volume is in contracts that expire within the next several months.

So let’s assume that we’re dealing with November calls in the case of WFC. You can sell calls on Wells Fargo at a strike price of $34 and an expiration date in November (it’s always the third Friday, so November 21 is the last day this option will trade or get exercised, though it technically expires the next day, on Saturday).

Yesterday those options traded at $3.50, and the price represents the per share price but options trade in lots of 100 shares, so the actual price of each options contract would be $350, and selling ten options contracts would get you income of $3,500 minus commissions (commissions for options are often a little higher than common stocks, and include a small per-contract fee, check with your broker).

You can do this exercise with any stock, just click on the “options” tab or link in any finance website and they’ll give you the current expiration dates and contract prices that are available for trade in the stock you’re interested in, along with current quotes — note that often unpopular options contracts might trade only a few times a week or less, so there’s no guarantee that you’ll get the price quoted. Thousands of stocks have options contracts available (people call those stocks “optionable”), but many, particularly smaller companies or newer stocks, do not.

So in our example, what happens between now and November 21? If the shares of Wells Fargo stay where they are, right around $31, you’re in great shape — you get to keep your shares, and the option would expire worthless so you keep that $3,500, too.

If the shares drop, you have to keep the shares because you’ve sold someone else the right to buy your shares for $34 before November 21. If the stock craters and you want to sell, you’ll have to buy back the options contract first — since the stock would be lower, you’ll probably still be able to make money on the options contract because you’ll probably buy it back for less than you were paid for the option originally, but then you don’t get to keep the whole $3,500. If the stock craters but you wish to hold for the long term anyway, at least you’re cushioned a little bit by the extra $3,500 you got for the option. Basically, if the shares don’t fall under $28 you can consider that you broke even (since you got $3.50 per share for the options contract).

In exchange for that, you give up some upside. I know, it doesn’t seem like we hear that word “upside” very often these days, but stocks can still go up. If Wells Fargo goes up to $33 you’re doing great, the options still won’t be exercised (exercised means the person who bought your option “exercises” their right to buy the shares from you at the contract price). But if suddenly all becomes right with the world and people start looking forward to a day when Wells Fargo will rule the economy, and the shares go up to $40, you still have to sell them for $34. Since you got $3,500 for your option, or $3.50 per share, you can think of it as still a profitable trade for you as long as WFC stays below $37.50 between now and November 21 ($34 for the cash you get when you sell your shares if they’re exercised + $3.50 for the options premium you’ve already pocketed).

So this is a real strategy, it is a nice way to make income in a relatively flat market, though when things are swinging dramatically up and down it can be a little crazy — as you can imagine, options are priced very differently now, when some individual stocks routinely move up or down 20% in day, then they were last year.

And perhaps most importantly, if you want to pursue this strategy you need to have a handle on your emotions and stick with the script — if it would drive you crazy to see Wells Fargo go to $50 when you have to sell it at $34, this might be a tough strategy to stick with … if, alternatively, you could ignore the market prices and just accept that you can average out to some pretty solid if unspectacular returns by selling calls every few months, it might work great for you.

Do keep in mind, however, that someone who sends you anywhere from 10-25 picks a year in this vein is going to be suggesting a lot of pretty big stock buys and call option sells. You’re probably not going to already own those stocks, so you’ll have to buy a fair amount of stock to make selling the calls worthwhile — if you trade single options contracts it can still work, but generally you reduce the commission friction by buying or selling larger amounts, which is why the examples used 1,000 shares and 10 offsetting options contracts, and you always have to own at least 100 shares of a stock to sell a call against your holdings. That means these strategies usually don’t work all that well if you’re just starting out and your portfolio is very small and you buy in odd lots of a few shares at a time.

If you like the idea but don’t want to do it yourself, you can also get what is essentially an index version of this by buying the S&P 500 Buy/Write ETF (the index is the CBOE Buy/Write Index, the ETF I’m aware of is from PowerShares, ticker PBP). This ETF simulates buying the S&P 500 and selling calls against the index to smooth returns a bit. It has been around for less than a year and I have no idea how it will perform, but it is an interesting product — over the last six months, it has done slightly better than the plain vanilla S&P ETF, down 20% instead of 27% or so for the index. There’s a similar ETF that started just this summer for the Nasdaq 100, ticker PQBW if you want to check it out.

There are also, if you like the active management approach, any number of closed end funds that use covered call and buy/write strategies, most of which trade at a pretty significant discount to Net Asset Value right now — if you want to review those, go to the Closed End Funds Association website here to search (choose the “options arbitrage/opt strategies” classification, it also includes other stuff but has several funds that use these kinds of strategies). Note that if you get into closed end funds you need to be careful about expense ratios and leverage as well as actual performance and premium/discount to net asset value — there are some fine ideas in that universe, but also some really wacky funds that are extremely expensive or that use lots of borrowed money to boost their returns.

So … are you just dying to buy some “Surety Income Certificates?”