We all love it when we buy a stock that goes straight up. That eliminates the stress of a possible loss, making it easier to sleep at night.

But what about a stock that tanks right after we buy it? Unfortunately, that does happen sometimes despite our best efforts to avoid a loss.

However, you can still make money from a stock that drops after you buy it. Even if it never gets back to your original purchase price. In fact, I just did that with a holding in one of my trading services.

I’ll show you how it works.

Falling Out of Bed

Last June, I sold a put option on home goods retailer Bed Bath & Beyond (NSDQ: BBBY). At the time, BBBY was trading a little over $20 a share.

At that price, BBBY was valued at less than 10 times forward earnings and less than one times book value. I believed BBBY had become oversold and would soon follow in the footsteps of other retailers that had recently staged big turnarounds.

Instead of buying the stock, I sold a put option on BBBY. I was paid a premium of $1.35 per share to assume the risk that someone else could sell me their shares of BBBY for $20 a piece over the next two months.

If BBBY never dropped below $20 before the expiration date of that option, I would make out like a bandit. The premium I received worked out to a cash yield of 6.8% over two months, or 43% on an annualized basis.

However, I turned out to be wrong on this trade. BBBY did fall below $20 before the expiration date. I was forced to buy the shares at that price even though they were trading around $18 by then.

Don’t Take a Bath

In late September, after BBBY fell to $15, I recommended selling a second put contract against it at a $15 strike price that expires in January for an options premium of $1.50 per share. I figured, how much lower could it go?

Turns out, BBBY continued to fall all the way down to less than $11 before the end of the year. However, BBBY rallied in January along with the rest of the stock market so those shares were not put to us.

That means we had collected two sets of options premiums on BBBY totaling $2.85. That reduced our original $20 cost basis to $17.15. In addition, by March 15 we earned three quarterly dividend payments of 16 cents each since the stock had been put to us. That further reduced our cost basis to $16.67.

With BBBY trading near $16, I was tempted to close out this position and eat the small loss. Instead, I decided to be patient and wait for the right time to make my move.

Look Beyond the Numbers

My break came on March 26 when news surfaced of a possible shakeup in the company’s management team. In response, BBBY quickly soared above $18. Later that day it settled down near $17, but by then I’d already made my move.

That morning, I advised my readers to sell the stock for a net gain of 8% in nine months. That’s a decent return, albeit nothing to brag about. However, that was an 8% gain… on a stock that had declined 10% in value!

Yes, some of that gain was dividends but most of it was option premiums. By the way, I could have squeezed a little more profit out of this position by selling a covered call option against it last week instead of selling the stock.

I didn’t do that, mainly because I don’t believe in pushing my luck. There’s an old saying on Wall Street: “The bulls make money and the bears make money, but the pigs get slaughtered.”

As I stated at the start, I much prefer it when a stock goes up after I buy it. You make a lot more money that way. As my experience with BBBY shows, I don’t always get them right.

But I know someone who gets it right with uncanny frequency, when it comes to making money in the stock market. Her name is Amber Hestla.

Amber Hestla is chief investment strategist of the premium trading service, Income Trader. But Amber isn’t just an investment expert. She’s also a former Military Intelligence Analyst (MOS Classification 35F) with the U.S. Army and an Iraq war veteran.

In military jargon, Amber’s job was to “analyze strategic and tactical intelligence about enemy forces and potential battle areas.” In plain English, Amber spent 14 hours a day trying to make sure other soldiers didn’t get blown apart by roadside bombs.

By combining her knowledge of Wall Street with her experience on the battlefield, Amber is adept at sifting through the white noise and determining which information is absolutely vital. That’s how she finds hidden investment winners.

Want to unlock Amber’s investing secrets and join her winning team? Click here now.