Any investor that thinks they will be able to fall back into their old investing habits and techniques in the market of the future is in for some very bad news. Our markets may never be the same when we recover from our current problems. Maybe that’s a good thing, but that’s for another article.

As things appear now, we are in for a prolonged period of sideways movement in the market. We could see a run to the psychological goal of 10,000, but it isn’t sustainable. There is neither the economic base nor the spending of the last decade to drive us to new highs or even back to our previous highs.

Making money over the next five to seven years will require learning new techniques and changing old beliefs about money and how to make it.  The good news is most of the techniques that will work during this period of no growth are some of the most predictable and most time proven available to investors.

Going forward if you aren’t able to adapt to the changes that are happening right now, you won’t make any money. The problem is we Americans like to have it our way and that is usually the familiar way. We aren’t big on change. That’s going to be really bad news for most investors.

There are great opportunities in this market right now. Great stocks are really cheap and the next group of “market made millionaires” is laying the foundation for their future success right now. The key now isn’t trading, day trading or even options, its patience, which none of us have when it comes to our money.

So why is a bond specialist talking about owning stock? Because you can’t own just bonds, and the strategy I will describe here is perfect for the type of person who likes the security and return of corporate bonds.

This is my favorite long term sideways market strategy, and one of the best strategies in almost any kind of market: covered call writing. It will require you learn a few new tricks, but it will make money and keep you in the market.  It will force you to give these tremendous stock opportunities time to work. Patience is the key to making money going forward.

It’s a simple process that starts with buying a rock solid company. Let’s use Merck as an example.  Currently it’s about $24.60 per share with a $1.52 dividend, or 6.2%. They are expected to earn $3.40 in 2010 so there is lots of money to pay the dividend. It is about $5 above its 52-week low, and about $15 below its 52 week high.

If all you do is buy the stock and watch it for several years you should make at least 6.2% per year just on the dividend. That’s about three times what you will make in a money market account and the growth potential is at least $10 to $15 per share.

Here’s how to really add a boost to your return while you’re waiting out this market. Sell a call against your position. Just call your broker and tell him you want to sell the January 27.50 call on Merck. It will pay you instantly $1.65 for every100 shares you own, for a whopping 6.7% just for giving someone the right to buy your shares from you at $27.50 by Jan 2010. Nice!

There are two possible outcomes for this play. The first one is if the stock price does not exceed $27.50 by the third Thursday of January, that’s when the option expires, you keep the stock, the premium of $1.65 and the two dividend payments due between now and January. That’s a total return of 3.15% for the dividend and 6.7% for the sale of the call for a total of 9.85% for doing nothing but waiting and owning a great company with huge potential in the future.

The second possibility, if the stock price exceeds $27.50 per share on or before the third Thursday in January your stock could be called, or purchased from you for $27.50. Here’s how your return looks in this case.

You keep the premium, the dividend and the difference between your purchase price and $27.50. So that’s about $.76 per share for the dividend, $1.65 per share for the sale of the option and about $2.90 for the sale of the stock at $27.50 if you paid $24.60.

$1.65 + $.76 + $2.90 = $5.31 divided by our cost of $24.60 for a return of 21.58% for making one phone call to your broker and saying “sell the Merck January 27.50 call.”

All of the transfer of money and stock and everything is done behind the scenes, you do nothing but collect the cash in your account. It’s almost like magic the way the money shows up. It is so easy and most people will not do it because it’s new and different and requires a little stretching beyond their comfort zone.

The real beauty is that this strategy forces you to stay with the stock at least until January 2010. The more time you give great holds like Merck in this market, the better your chances of making really big returns on the growth in the stock price. Staying the course over the next few years is how you will make money, not by trying to guess what the market is doing.

That’s how a dyed-in-the-wool bond guy makes money in stocks.

Covered call writing is one of the few ways you can wait out this market, build a great portfolio and still make very nice returns while the market moves sideways. As with all new things, it takes a few tries before it really begins to make sense and it will definitely be worth your effort.

Good luck!

Steve