Editor's note: Uncertainty struck the markets again in recent weeks... And that's the ideal setup for Retirement Trader editor Dr. David "Doc" Eifrig's favorite trading strategy. In this piece – updated and adapted from the April 18, 2022 issue of DailyWealth – Doc explains how this technique adds "insurance" to your portfolio... along with peace of mind.

Even if they didn't smoke, the prisoners should have held onto those cigarettes...

It was 1942. British soldiers had been captured in Libya, then shipped off to an Italian transit camp as prisoners of war ("POWs").

When the POWs got their first weekly Red Cross food deliveries, they immediately began swapping items. Everyone wanted to trade some of their rations for someone else's... but no one had established their true value.

For example, if a soldier didn't smoke, he was happy to give up his cigarettes for a bit more food. And the Sikh prisoners – whose faith promotes vegetarian diets – were eager to accept anything in exchange for their tins of beef.

Before long, each soldier had a better idea of what everything in his Red Cross box was worth. But the system wasn't perfect – which meant some folks could come out with better bargains...

It's one of the deepest truths about markets... Uncertainty leads to disagreement, and disagreement leads to varied prices. Knowing what you're looking for gives you an opportunity to make outsized gains.

We'll see how this truth is playing out today...

One of the prisoners from back then, R.A. Radford – who studied economics before enlisting in the British Army – described their dynamic in his 1945 paper, "The Economic Organisation of a P.O.W. Camp."

Within a week or two, as the volume of trade grew, rough scales of exchange values came into existence...

It was realized that a tin of jam was worth one-half pound of margarine plus something else; that a cigarette issue was worth several chocolate issues, and a tin of diced carrots was worth practically nothing.

By the time Radford settled into a permanent POW camp in Germany, the values were so firmly established that the prisoners posted signs with each item's going rate. Cigarettes were the currency.

A stable, predictable market ensures that each participant gets a fair deal. But experienced investors see their biggest gains in times of chaos.

Radford gave this example...

Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes.

The priest exploited uncertainty in the POW camp. And if you're looking for uncertainty, look no further than the world today...

Investors don't know what's going to happen with the wars overseas... They don't know how the markets will react to a new president... or to future rate decisions from the Federal Reserve.

In response, investors are clamoring to buy one particular thing right now. And you can make a lot of money selling it to them.

Specifically, I'm talking about selling put options.

Just like the first days in a POW camp, we can see that current prices aren't where they are supposed to be... and that means there's a tremendous opportunity to make money.

Let me be clear: This strategy is not taking advantage of anyone. We are going to give them exactly what they want... and at the price they want. And we will end up richer because of it.

Let me show you how...

At any time, hundreds of thousands of options are available to sell. With such a vast market, you can always find a deal somewhere.

You can understand options in a lot of different ways. I find it particularly helpful to think about them as insurance or portfolio protection...

When you buy home insurance, you're paying for protection against loss of value to your home. You pay money to the insurance company each and every year. Most years, the house doesn't burn down. Most likely, it never will.

The customer is happy to pay for peace of mind, and the insurance company is happy to earn healthy profits.

But how much does the insurance cost each year?

That depends on the likelihood of a fire...

If you have a home in a safe area, it may cost $500 per year. If there's an arsonist school nearby, maybe rates will double to $1,000. And if you build it near the base of an active volcano, maybe the rate jumps to $5,000.

The difference is risk. The insurance company is raising its rates to protect its bottom line. And the customer is willing to pay more because he wants additional protection against a potential disaster.

Investors tend to want extra protection amid heightened economic uncertainty. That can lead to surges in income for option sellers.

One index essentially measures the price of this insurance. It's called the CBOE Volatility Index ("VIX"). The VIX takes the price of options and works backward to see how volatile option buyers think stocks will be in the future (what's called "implied volatility").

For the majority of the past 10 years, the VIX – or the expected volatility of the market – was roughly 15, sometimes getting as low as 9. During the worst of the pandemic, expected volatility surged to more than 80.

In December 2024, with uncertainty clouding the markets, it jumped to more than 27. And it hovers around 18 today. Take a look...

You can also see how frequently the VIX goes through sudden spikes in volatility.

So, just how much more money can we make?

Let's say you wanted to sell insurance on a stock like Johnson & Johnson (JNJ). Johnson & Johnson is a giant in the health care space. It has a history of strong returns and growing dividends.

Even though most people would love to own Johnson & Johnson at today's prices (it's currently trading near a multiyear low), nervous investors still want to buy insurance in case it falls more.

In a calm market, like June of last year, an option seller could make $243 by selling Johnson & Johnson insurance. Not bad.

But today, because of the fear in the market, the price of that insurance has shot up to $403.

That's a 66% increase for a nearly identical put option... The only thing that has changed is the level of fear in the market.

If volatility was at the levels we saw last month, you could make nearly $590 by selling insurance on Johnson & Johnson.

You can make hundreds, even thousands, in extra income per month by selling options. I truly believe there has never been a better time to learn how to do so...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Doc first developed his option-selling technique in the days when he worked at Goldman Sachs. It's a way to collect monthly cash payouts from the market – with less risk than owning blue-chip stocks outright. And over the past 15 years, he has used this strategy to achieve a 95% win rate – and winning streaks of up to 211 trades in a row.

Now, Doc is issuing a "New Year Money Challenge." He's looking to teach at least 500 readers his No. 1 favorite strategy... So if you want to make 2025 your best year yet, check out Doc's invitation here.