MONEY AND POLITICS
I promised I'd try to not get so personal (read mean) when it comes to the liberal governing class. I'll try, yes but that's all I can do. This new so-called jobs bill is a joke. Okay, so my new-found attitude almost last a paragraph. No, seriously what are they smoking?
Henry R. Nothhaft, writhing in the Wall Street Journal weighed in with some heavy-duty insights. He said: "We know for starters, that 100% of net job growth in the U.S. comes from entrepreneurial start-ups, as a Kauffman Foundation report documented in 2010. If you took start-ups out of the picture and looked only at large or incumbent businesses, job grown over the last 35 years would actually be negative. In the words of Kauffman's Tim Kane, 'When it comes to U.S. job growth, start-up companies aren't everything. THEY ARE THE ONLY THING.'" (emphasis mine)
So why isn't' the government, and specifically this administration doing anything and everything to foster new start-ups? Why aren't we encouraging companies to move here? With a simple wire transfer, people and businesses can move billions of dollars around the globe, to better tax and business friendly countries, but we can't wire transfer or email workers like the money.
"Over the last 10 years, U.S. multinational firms cut their domestic work force by 2.9 million while boosting hiring abroad by 2.4 million." (Ibid Notthaft)
So please, Mr. Obama, please stay home and be quiet. We Americans will solve all of these problems. If you will get government off our backs and out of our wallets, we will work wonders and restore the American Dream. Government cannot do that, so please stop trying.
More Later, Wade
Wednesday, September 28, 2011
PICTURESQUE
STOCK MARKET AND POLITICS
I've never attempted to write what I'm about to write. I use metaphors from time to time, but I'm not that good at them. I'm a little out in left field, metaphorically speaking.
I would like to draw a picture for you. This is not that tough because I'm going to use a picture as the subject matter, and try to make this whole process picturesque. There will be four components and we can learn lessons from each one of them, but the main lesson I hope to convey is that what we see, what we understand is all part of something else, something bigger. And this something else has a part in determining the direction of each of these components. This idea is sort of a "No man is an island," to use another metaphor.
I'm sure you've seen a picture of a fox hunt, probably in ol' England. The hunters are adorned in their red coats, their riding helmets. The fox has taken off and the dogs lead out. The hunters jump hedges and streams which somehow the dogs get through. Okay, do you have that picture in mind? Focus in on the horses jumping the hedges.
Now, back off a little and you'll see more countryside. Trees in the distance. A farmhouse off to the left. The fox has skedaddled off over the next rise.
Now, look some more and you'll see the skies, the clouds and the wind blowing. This artist is good. It's a blustery day, a good day to be up on a tall warm-blood. It's synergy in motion.
Now, consider your own life, your history, the scenes you've seen and you'll realize what you see, what you think about and what you feel is an integral part of how you see this picture.
Let's come back to the American stock market. You are chasing the fox. The blood hounds are out. You're ready for the adventure. You look hard and realize your viewpoint is part of something bigger.
1) You're looking at a specific company. Will it come out with good earnings?
Will it disappoint? Will it be the right investment for you?
2) It's part of a major industry which is really growing. It should do well.
3) But the economy is in the doldrums. The earnings are good, but all these stock seem stuck.
4) News keeps coming out about the European debt crisis. Greece is about to go under.
How can debt in Italy or Greece, and the housing market here, and our new trade numbers with China, and the threat of new taxes, effect your little "Micro-Chip" stock? Because it's a part of the whole. The components effect the larger picture and the larger picture effects you small company.
Think how inter-connected everything is. A small computer chip company in Southern Idaho, doing business in the computer industry with it's rapidly advancing changes; stuggling to make it in America, with an economy which has strengths and weaknesses; all transpiring on the back canvas of the world stage. It's mind boggling and very exciting as we try to make sense of it and figure out how to trade. Molly Farragut from Fairbanks just did really well with this on a great trade on the whole market---the Dow---trading the Diamonds (DIA). She took $2,610 and sold it for exactly $5,000 three days later---netting $2,390. More later.
So how do you trade? How do you make money? One, put the market forces to work for you. Be a seller, as in a covered call writer. Focus on the short-term, make sure there's a forklift to move your stock. Think about the exit before you go in the entrance. Do things with a purpose. Connect the dots better.
See my new revised book STOCK MARKET MONEY MACHINE to learn how to get these market forces to work for you, not against you. It's available on Amazon.
Wade
I've never attempted to write what I'm about to write. I use metaphors from time to time, but I'm not that good at them. I'm a little out in left field, metaphorically speaking.
I would like to draw a picture for you. This is not that tough because I'm going to use a picture as the subject matter, and try to make this whole process picturesque. There will be four components and we can learn lessons from each one of them, but the main lesson I hope to convey is that what we see, what we understand is all part of something else, something bigger. And this something else has a part in determining the direction of each of these components. This idea is sort of a "No man is an island," to use another metaphor.
I'm sure you've seen a picture of a fox hunt, probably in ol' England. The hunters are adorned in their red coats, their riding helmets. The fox has taken off and the dogs lead out. The hunters jump hedges and streams which somehow the dogs get through. Okay, do you have that picture in mind? Focus in on the horses jumping the hedges.
Now, back off a little and you'll see more countryside. Trees in the distance. A farmhouse off to the left. The fox has skedaddled off over the next rise.
Now, look some more and you'll see the skies, the clouds and the wind blowing. This artist is good. It's a blustery day, a good day to be up on a tall warm-blood. It's synergy in motion.
Now, consider your own life, your history, the scenes you've seen and you'll realize what you see, what you think about and what you feel is an integral part of how you see this picture.
Let's come back to the American stock market. You are chasing the fox. The blood hounds are out. You're ready for the adventure. You look hard and realize your viewpoint is part of something bigger.
1) You're looking at a specific company. Will it come out with good earnings?
Will it disappoint? Will it be the right investment for you?
2) It's part of a major industry which is really growing. It should do well.
3) But the economy is in the doldrums. The earnings are good, but all these stock seem stuck.
4) News keeps coming out about the European debt crisis. Greece is about to go under.
How can debt in Italy or Greece, and the housing market here, and our new trade numbers with China, and the threat of new taxes, effect your little "Micro-Chip" stock? Because it's a part of the whole. The components effect the larger picture and the larger picture effects you small company.
Think how inter-connected everything is. A small computer chip company in Southern Idaho, doing business in the computer industry with it's rapidly advancing changes; stuggling to make it in America, with an economy which has strengths and weaknesses; all transpiring on the back canvas of the world stage. It's mind boggling and very exciting as we try to make sense of it and figure out how to trade. Molly Farragut from Fairbanks just did really well with this on a great trade on the whole market---the Dow---trading the Diamonds (DIA). She took $2,610 and sold it for exactly $5,000 three days later---netting $2,390. More later.
So how do you trade? How do you make money? One, put the market forces to work for you. Be a seller, as in a covered call writer. Focus on the short-term, make sure there's a forklift to move your stock. Think about the exit before you go in the entrance. Do things with a purpose. Connect the dots better.
See my new revised book STOCK MARKET MONEY MACHINE to learn how to get these market forces to work for you, not against you. It's available on Amazon.
Wade
Friday, September 23, 2011
Market Thoughts
I would like to put in my thoughts on the market right here, right. It's September, historically a very bad month. It's the end of the red-light period (no-news) and has been left with non-earnings news, mostly from around the world. It's been pretty bleak. Then the Fed disappoints, and bam, it's down.
This period is about over. The market has pretty good support at 11,200. That's the DJIA. If it hits 10,800 again, which it might do, that is even more firm support. But companies are making huge amounts of money. Official earnings season begins about Oct. 10th. However we're wrapped up with a government which is doing more harm than good, and this puts a damper on everything.
If you have a chance to look at an IBD, Wall Steet Journal or Barron's, or even look it up online, look for a 30 day chart---one that incorporates August and September up to now. Look at the last few days of August. In technical analysis, or in any charting way of thinking, you look for a double bottom. Specifically a chart or bounce that looks good is called a "double bounce, with a raised right cheek." I'm not making this up. It's like a double dip but the second dip---if it does not go as low as the first dip---signals that the market, or a particular stock, will go up more. If you have a triple dip, with two lows that are higher than the first low, it's even better. The market moves up. I think we're about to have a quadruple dip, and the market will rebound nicely.
This means that the market the rest of this week bounces off 11,200. If not, all bets are off.
You can play the whole market---either an index trade on the Dow, DJX, or by buying calls or puts on the DIA, an ETF that owns all of the DJIA 30 stocks. These are called the Diamonds. They have $1 and $2 strike prices. For example, if the Dow is at 11,200, you could practice trade (first to learn how to do this) the DIA $112 or $114 calls. Play is for a double. An old rule of thumb was that if the Dow went up 100, that represented about 50 cents on the option. Check it out and see if it's still true.
Let me know how it goes.
This period is about over. The market has pretty good support at 11,200. That's the DJIA. If it hits 10,800 again, which it might do, that is even more firm support. But companies are making huge amounts of money. Official earnings season begins about Oct. 10th. However we're wrapped up with a government which is doing more harm than good, and this puts a damper on everything.
If you have a chance to look at an IBD, Wall Steet Journal or Barron's, or even look it up online, look for a 30 day chart---one that incorporates August and September up to now. Look at the last few days of August. In technical analysis, or in any charting way of thinking, you look for a double bottom. Specifically a chart or bounce that looks good is called a "double bounce, with a raised right cheek." I'm not making this up. It's like a double dip but the second dip---if it does not go as low as the first dip---signals that the market, or a particular stock, will go up more. If you have a triple dip, with two lows that are higher than the first low, it's even better. The market moves up. I think we're about to have a quadruple dip, and the market will rebound nicely.
This means that the market the rest of this week bounces off 11,200. If not, all bets are off.
You can play the whole market---either an index trade on the Dow, DJX, or by buying calls or puts on the DIA, an ETF that owns all of the DJIA 30 stocks. These are called the Diamonds. They have $1 and $2 strike prices. For example, if the Dow is at 11,200, you could practice trade (first to learn how to do this) the DIA $112 or $114 calls. Play is for a double. An old rule of thumb was that if the Dow went up 100, that represented about 50 cents on the option. Check it out and see if it's still true.
Let me know how it goes.
Covered Calls Batch #1B
WHY DO COVERED CALLS WORK
We ended the last blog with thoughts on "Assets Producing Income." This is a solid way to get "cash flow wealthy." Think of the alternative: You trade your time for money. What about getting your money working harder for you? Getting your money to carry a bigger share of the load? Many people do not know how to do this. Let me state it in a way that just might make sense to you.
We buy an asset, in this case a stock, and then sell a fluffy option against our position. When I say against our position I mean it's like a lien on a property. Someone has the right to buy our stock. Built into the option price is all the speculation and future growth possibilities.
Say, you buy a great piece of real estate. It's in a very desirable neighborhood, one that many think will grow in value. You not only rent it for more than normal, but what if you gave the renters the right to buy the property at a fixed price, say within a year or two. Question: Will people pay more in rent if they have the right to buy the property down the road? Will they pay more now to lock in the price? Understand this and you understand the power of writing covered calls.
The asset is the stock, you know exactly what you paid for it. There is no fluff. A stock price today is based on the anticipation of future earnings. Take that last sentence to the bank. However the option is loaded with speculation, along with the time to expiration. Think of Bank of America's stock at $7.05. It's solid right now, look at the investments of Warren Buffett. It is at $7.05 and the current book value is over $20. What a bargain. Now, what do investors think of the price and the direction it will move. The October call options are 55 cents to sell (Wednesday price). If you owned 1,000 shares, you could sell 1,000 of these options for $550. Yes, if you actually sold the stock you'd have to give back the 5 cents, or $50 (.05 X 1,000), but you take in $550 now. That's cash you can use. It's your money. The market gave it to you. Think of purchasing 1,000 shares for $7,050, or half of that on margin, $3,525. Now, by selling the option you take in $550 cash. Wow.
DOUBLE DIPPING.
From time to time in these blogs I mention the buy-back. I believe the buy-back is the most powerful strategy in the stock market. It's a wonder so few people know about it, and fewer yet use it. When you sold the option you opened a position on your stock. If you buy the same option now---same month, same strike price, same quantity---you would close the position.
Let's say the stock goes down to $6.95 and three weeks have elapsed. The option premium has gone down. Think how this works. You sold the fluff---including the time to expiration. Now the stock didn't move exactly like someone thought it would. The option is now going for 10 cents. After you check out the options for the next month out, and you like the new price, you decide to buy back the October's for 10 cents and sell the November's for 50 cents. You spend $100 to buy back, and take in another $500. What if you can do this every month? It's easier to do than you think. It's an awesome way to make repetitive income.
As I traveled the country, many students not only extolled the virtues of writing covered calls and how it "saved their fannies," but many told me how they were double- and triple-dipping. I set out the beat my own students at this process. Twice, once with Qualcom and once with Netflix, I was able to do five, read that 5, times in one month. I've tried since then and have not been able to do so. Twice, piece of cake. Thrice, tough but doable.
What you need to do this several times a month is three things:
1) An understanding of how the buy-back works.
2) Working knowledge of how to use orders and alerts to notify of stock movements and target prices.
3) A volatile stock, say one that moves 50 cents to $1 every few days. This is for stocks between $2 and $8.
For more expensive stocks, the movement must be $2 to $5 every few days.
It's not that tough. It's even easier than you think. With internet access, a good broker, you are in the drivers seat.
The next blog will be about why we use cheaper stocks, instead of Google and Apple. We'll also continue with more inside secrets on how to excel at this process.
We ended the last blog with thoughts on "Assets Producing Income." This is a solid way to get "cash flow wealthy." Think of the alternative: You trade your time for money. What about getting your money working harder for you? Getting your money to carry a bigger share of the load? Many people do not know how to do this. Let me state it in a way that just might make sense to you.
We buy an asset, in this case a stock, and then sell a fluffy option against our position. When I say against our position I mean it's like a lien on a property. Someone has the right to buy our stock. Built into the option price is all the speculation and future growth possibilities.
Say, you buy a great piece of real estate. It's in a very desirable neighborhood, one that many think will grow in value. You not only rent it for more than normal, but what if you gave the renters the right to buy the property at a fixed price, say within a year or two. Question: Will people pay more in rent if they have the right to buy the property down the road? Will they pay more now to lock in the price? Understand this and you understand the power of writing covered calls.
The asset is the stock, you know exactly what you paid for it. There is no fluff. A stock price today is based on the anticipation of future earnings. Take that last sentence to the bank. However the option is loaded with speculation, along with the time to expiration. Think of Bank of America's stock at $7.05. It's solid right now, look at the investments of Warren Buffett. It is at $7.05 and the current book value is over $20. What a bargain. Now, what do investors think of the price and the direction it will move. The October call options are 55 cents to sell (Wednesday price). If you owned 1,000 shares, you could sell 1,000 of these options for $550. Yes, if you actually sold the stock you'd have to give back the 5 cents, or $50 (.05 X 1,000), but you take in $550 now. That's cash you can use. It's your money. The market gave it to you. Think of purchasing 1,000 shares for $7,050, or half of that on margin, $3,525. Now, by selling the option you take in $550 cash. Wow.
DOUBLE DIPPING.
From time to time in these blogs I mention the buy-back. I believe the buy-back is the most powerful strategy in the stock market. It's a wonder so few people know about it, and fewer yet use it. When you sold the option you opened a position on your stock. If you buy the same option now---same month, same strike price, same quantity---you would close the position.
Let's say the stock goes down to $6.95 and three weeks have elapsed. The option premium has gone down. Think how this works. You sold the fluff---including the time to expiration. Now the stock didn't move exactly like someone thought it would. The option is now going for 10 cents. After you check out the options for the next month out, and you like the new price, you decide to buy back the October's for 10 cents and sell the November's for 50 cents. You spend $100 to buy back, and take in another $500. What if you can do this every month? It's easier to do than you think. It's an awesome way to make repetitive income.
As I traveled the country, many students not only extolled the virtues of writing covered calls and how it "saved their fannies," but many told me how they were double- and triple-dipping. I set out the beat my own students at this process. Twice, once with Qualcom and once with Netflix, I was able to do five, read that 5, times in one month. I've tried since then and have not been able to do so. Twice, piece of cake. Thrice, tough but doable.
What you need to do this several times a month is three things:
1) An understanding of how the buy-back works.
2) Working knowledge of how to use orders and alerts to notify of stock movements and target prices.
3) A volatile stock, say one that moves 50 cents to $1 every few days. This is for stocks between $2 and $8.
For more expensive stocks, the movement must be $2 to $5 every few days.
It's not that tough. It's even easier than you think. With internet access, a good broker, you are in the drivers seat.
The next blog will be about why we use cheaper stocks, instead of Google and Apple. We'll also continue with more inside secrets on how to excel at this process.
Sunday, September 18, 2011
Covered Calls Batch #1A
I would like to continue the educational process about using the stock market as a way to generate income. I firmly believe it makes a great part-time, home-based business. I will share a few covered call basics, then give a batch of stocks that generate around 10% cash this month, and even 20% if you use margin. At the end I'll give a few helpful hints and then make more useful techniques in Batch 1B.
Covered Call writing is a way to use an asset to sell a position against it for income. Rental real estate readily comes to mind. Or licensing something. You use an asset, keeping it intact to generate income. In the stock market, this works well because you are buying a fixed price asset, like a stock. At least it was fixed when you bought. Now you sell an option against your covered position.
Call Options usually give a person the right to buy a stock at a fixed price, called the strike price, on or before a certain date, called the expiration date. This type of investment has an added level of risk - that of the expiration date. Whenever an investment ends, say an option for six months to buy a piece of real estate, the clock is not your friend. Time works against you. Also, the option is very risky, so one should be very careful.
Let's look at the riskiness of the stock option. The option premium is made up of several components. One is the time to expiration. Another is a constant, built into the formula for pricing. But the fun begins with this third component, called the speculative value, or the implied volatility. We call all of these the time value.
Before we move on let me give one example of time value, or the speculative value. It is someone's guess, someone'e speculation. You could have an $18 stock with the $20 call option at 40 cents. Another company's stock price is also $18, but the option at $20 is $1.20. And our third stock at $18 has a $20 call going for $2.80. Why the difference? Aahh, there is the $64,000 question. Basically and simply, the 40 cent option says the stock is flat, it's not going anywhere. The $1.20 option says there is a slight amount of volatility. It's moving. The $2.80 says we have a mover. The option is expensive (the puts are probably expensive, too).
Expensive options do not necessarily make them better, or the stock better. A cheap option is not better or worse. The prices tell a story. Think of the process in reverse. Think like an option salesman, or think like a seller of the option. If you sell a call against stock you own, you are selling the right to let someone buy your stock at $20, in our example. If your stock is dead in the water, going nowhere, you're not going to get very much for selling the option. No one will pay you much. But if you have stock in a tremendous company, and the immediate future looks good, or there is good news everywhere, then the option is expensive. From your point of view, if you are giving up everything above $20, and that possible future looks good, don't you want to get paid well? That's why you get $2.80.
If we put real numbers to this trade, you would buy 1,000 (or any amount in lots of 100 shares), for $18,000, or $9,000 on margin. Now you sell the $20 call (ten contracts at 100 shares each) for $2.80, or $2,800. That's right, someone is willing to give you $2,800 cash now, and tie up your stock for the next four weeks. Now, as time moves forward, the stock will go up, down or sideways. If it's above $20 you will sell the stock, and keep the $2,800 and the new capital gains of $2,000. If it does not go above $20, you get to keep the stock and the $2,800. And you write the calls out for the next month, for say $2,900, or whatever you can.
HERE'S OUR SAMPLE BATCH #1A:
We'll take $20,000 and buy some stocks on margin, spending close to $40,000. We're looking for 5% to 10% option returns. This means our cash returns will be double this on margin.
FAS is going for $13.84, 1,000 shares cost us $13,840. We sell the $14 calls for October for $1.63, Or $1,630.
MU (Micron Technology---one of my favorites) is $6.98, or $6,980. We sell the $7 calls for 65 eents, or $650.
EK is $2.80, and we buy 1,000 shares for $5,600 and then sell the $3 call for 41 cents times 2,000, or $820
JDSU is going for $13.17, or $13,170. We then sell the $13 calls for $1.18, taking in $1,180.
We sold some of these in the money and some out of the money. I didn't do the calculations for the extra.
CONCLUSION
We invested $39,590 and took in $4,280. That's over 10% on the whole amount, but about 20% on our original $20,000.
And think of this: We have $4,280 in the account. We can pull it out and pay the bills. We could buy more stock with it. We could leave it there in the account to help with the margin. It's just cash in the account.
We did this with only one trade per stock. In real life we could do buy-backs and double dip. We can buy back and sell out the next month. We're in the game, putting time to work for us. We're in the game, selling the fluff of the options. We have assets producing income, helping us retire better.
______________________________________________________________________________________________________
Copyright 2011 All Rights Reserved. Please see your own financial professional for trade suitability.
All prices and transactions are a snap-shot in time. Your results will vary.
Covered Call writing is a way to use an asset to sell a position against it for income. Rental real estate readily comes to mind. Or licensing something. You use an asset, keeping it intact to generate income. In the stock market, this works well because you are buying a fixed price asset, like a stock. At least it was fixed when you bought. Now you sell an option against your covered position.
Call Options usually give a person the right to buy a stock at a fixed price, called the strike price, on or before a certain date, called the expiration date. This type of investment has an added level of risk - that of the expiration date. Whenever an investment ends, say an option for six months to buy a piece of real estate, the clock is not your friend. Time works against you. Also, the option is very risky, so one should be very careful.
Let's look at the riskiness of the stock option. The option premium is made up of several components. One is the time to expiration. Another is a constant, built into the formula for pricing. But the fun begins with this third component, called the speculative value, or the implied volatility. We call all of these the time value.
Before we move on let me give one example of time value, or the speculative value. It is someone's guess, someone'e speculation. You could have an $18 stock with the $20 call option at 40 cents. Another company's stock price is also $18, but the option at $20 is $1.20. And our third stock at $18 has a $20 call going for $2.80. Why the difference? Aahh, there is the $64,000 question. Basically and simply, the 40 cent option says the stock is flat, it's not going anywhere. The $1.20 option says there is a slight amount of volatility. It's moving. The $2.80 says we have a mover. The option is expensive (the puts are probably expensive, too).
Expensive options do not necessarily make them better, or the stock better. A cheap option is not better or worse. The prices tell a story. Think of the process in reverse. Think like an option salesman, or think like a seller of the option. If you sell a call against stock you own, you are selling the right to let someone buy your stock at $20, in our example. If your stock is dead in the water, going nowhere, you're not going to get very much for selling the option. No one will pay you much. But if you have stock in a tremendous company, and the immediate future looks good, or there is good news everywhere, then the option is expensive. From your point of view, if you are giving up everything above $20, and that possible future looks good, don't you want to get paid well? That's why you get $2.80.
If we put real numbers to this trade, you would buy 1,000 (or any amount in lots of 100 shares), for $18,000, or $9,000 on margin. Now you sell the $20 call (ten contracts at 100 shares each) for $2.80, or $2,800. That's right, someone is willing to give you $2,800 cash now, and tie up your stock for the next four weeks. Now, as time moves forward, the stock will go up, down or sideways. If it's above $20 you will sell the stock, and keep the $2,800 and the new capital gains of $2,000. If it does not go above $20, you get to keep the stock and the $2,800. And you write the calls out for the next month, for say $2,900, or whatever you can.
HERE'S OUR SAMPLE BATCH #1A:
We'll take $20,000 and buy some stocks on margin, spending close to $40,000. We're looking for 5% to 10% option returns. This means our cash returns will be double this on margin.
FAS is going for $13.84, 1,000 shares cost us $13,840. We sell the $14 calls for October for $1.63, Or $1,630.
MU (Micron Technology---one of my favorites) is $6.98, or $6,980. We sell the $7 calls for 65 eents, or $650.
EK is $2.80, and we buy 1,000 shares for $5,600 and then sell the $3 call for 41 cents times 2,000, or $820
JDSU is going for $13.17, or $13,170. We then sell the $13 calls for $1.18, taking in $1,180.
We sold some of these in the money and some out of the money. I didn't do the calculations for the extra.
CONCLUSION
We invested $39,590 and took in $4,280. That's over 10% on the whole amount, but about 20% on our original $20,000.
And think of this: We have $4,280 in the account. We can pull it out and pay the bills. We could buy more stock with it. We could leave it there in the account to help with the margin. It's just cash in the account.
We did this with only one trade per stock. In real life we could do buy-backs and double dip. We can buy back and sell out the next month. We're in the game, putting time to work for us. We're in the game, selling the fluff of the options. We have assets producing income, helping us retire better.
______________________________________________________________________________________________________
Copyright 2011 All Rights Reserved. Please see your own financial professional for trade suitability.
All prices and transactions are a snap-shot in time. Your results will vary.
STALE POLITICS
Doing the same thing over and over again, and expecting . . .
I thought I'd weigh in with a few thoughts about the new so-called jobs bill, which is nothing but a taxing bill, with two massive new government agencies to steal away more of our freedoms.
I suggest we need growth. To get this we need stable taxes, ones we can count on, base decisions on and then get on with our businesses. We need a complete repeal of ObamaCare. It's a dangerous, destructive and dubious enterprise. It is fraught with stupid ideas. In fact, we need less government regulations---like the Dodd-Frank bill, a bill almost as bad as ObamaCare.
What we don't need is top-down government control. I vote for freedom. It always works. George Gilder, quoting technologist Carver Meade said: "We depend on innovations of the citizens of a free economy to keep ahead of the bureaucrats and the people who make a living on control and planning. In the long term, it's the element of surprise that gives us the edge over more controlled economies."
He goes on: "Almost everything Mr. Obama consists of bets on 'bureaucrats and people who make a living on control and planning." He states we have: "BUREAUCRATS BOSSING AROUND TAX DOLLARS."
Recently in Investor's Business Daily the editors opined, "Club for Growth executive director David Keating stated after phone conferences with numerous corporate CEOs: "They see job creators being viewed as just targets, sources of government revenues." Mr. Keating replies, "And so, their money is frozen on the sidelines."
I thought I'd weigh in with a few thoughts about the new so-called jobs bill, which is nothing but a taxing bill, with two massive new government agencies to steal away more of our freedoms.
I suggest we need growth. To get this we need stable taxes, ones we can count on, base decisions on and then get on with our businesses. We need a complete repeal of ObamaCare. It's a dangerous, destructive and dubious enterprise. It is fraught with stupid ideas. In fact, we need less government regulations---like the Dodd-Frank bill, a bill almost as bad as ObamaCare.
What we don't need is top-down government control. I vote for freedom. It always works. George Gilder, quoting technologist Carver Meade said: "We depend on innovations of the citizens of a free economy to keep ahead of the bureaucrats and the people who make a living on control and planning. In the long term, it's the element of surprise that gives us the edge over more controlled economies."
He goes on: "Almost everything Mr. Obama consists of bets on 'bureaucrats and people who make a living on control and planning." He states we have: "BUREAUCRATS BOSSING AROUND TAX DOLLARS."
Recently in Investor's Business Daily the editors opined, "Club for Growth executive director David Keating stated after phone conferences with numerous corporate CEOs: "They see job creators being viewed as just targets, sources of government revenues." Mr. Keating replies, "And so, their money is frozen on the sidelines."
I agree. From my earliest real estate days I learned that "confusion means no." We're getting "NO" from around the country and around the globe. No more taxes. No more regulations. No more government control. No more loss of our freedoms. In fact, there's a good campaign slogan for 2012:
"NObama."
Friday, September 16, 2011
SUPPLY vs. DEMAND
It is really difficult to get a handle on the effect government has on our everyday lives without understanding a few underlying principles, including the jargon that accompany them. One such grouping of words that comes up frequently is "Supply-Side Economics," and "Demand Side Economics."
And then the party that destroys words consistently attacks and pins a epithet on a word---like "Trickle Down Economics"---and it confuses people even more. Guess which of the two types of economics has this negative appellation attached to it? We'll get to that in a minute.
Let me share a few ideas about each type of economic activities---especially those imposed by government---and then you judge, you decide which is best for the country.
DEMAND SIDE
This theory tries to increase demand with government infusion of money. Some call it stimulus. Lately, the Liberals are calling it investments. Demand Side uses government controls to control and manipulate production.
There are three ways they do this:
1) They borrow money, if needed. And it's always needed. Margaret Thatcher said;
"Liberal always fails because sooner or later they run out of other people's money."
This increase in deficits and debt causes inflation. They think they can pay off the debt with cheaper money.
2) They raise taxes, especially on the high earners.
3) They "Redistribute Wealth." They do not promote growth, except in government.
SUPPLY SIDE
This strategy incentivizes production, the supply side, by lowering restraints (read regulations at every level). Their emphasis is on expansion of business and investment.
They do this by:
1) Slash tax rates (especially at the margin---the next dollar).
2) Eliminate regulatory high hurdles. Make sure laws are passed by our representatives, not bureaucrats like the EPA.
3) Rein in inflation with tighter monetary policy.
One is proposed by the Keynesians who are Socialists, Big Government types. One is by Free Market Enthusiasts and Constitutionalists. Funny thing, that "Trickle Down Wealth" works. But the most amazing thing is that such a failed, stale, destructive concept as "Keynesian Style Demand Side Economics" gets the time of day. It should be abandoned, repealed and thrown in the trash-bins of history.
More on Keynes and the President's Destruction machine coming up in a few more blogs.
Wade
And then the party that destroys words consistently attacks and pins a epithet on a word---like "Trickle Down Economics"---and it confuses people even more. Guess which of the two types of economics has this negative appellation attached to it? We'll get to that in a minute.
Let me share a few ideas about each type of economic activities---especially those imposed by government---and then you judge, you decide which is best for the country.
DEMAND SIDE
This theory tries to increase demand with government infusion of money. Some call it stimulus. Lately, the Liberals are calling it investments. Demand Side uses government controls to control and manipulate production.
There are three ways they do this:
1) They borrow money, if needed. And it's always needed. Margaret Thatcher said;
"Liberal always fails because sooner or later they run out of other people's money."
This increase in deficits and debt causes inflation. They think they can pay off the debt with cheaper money.
2) They raise taxes, especially on the high earners.
3) They "Redistribute Wealth." They do not promote growth, except in government.
SUPPLY SIDE
This strategy incentivizes production, the supply side, by lowering restraints (read regulations at every level). Their emphasis is on expansion of business and investment.
They do this by:
1) Slash tax rates (especially at the margin---the next dollar).
2) Eliminate regulatory high hurdles. Make sure laws are passed by our representatives, not bureaucrats like the EPA.
3) Rein in inflation with tighter monetary policy.
One is proposed by the Keynesians who are Socialists, Big Government types. One is by Free Market Enthusiasts and Constitutionalists. Funny thing, that "Trickle Down Wealth" works. But the most amazing thing is that such a failed, stale, destructive concept as "Keynesian Style Demand Side Economics" gets the time of day. It should be abandoned, repealed and thrown in the trash-bins of history.
More on Keynes and the President's Destruction machine coming up in a few more blogs.
Wade
The Goose that lays the Golden Eggs
Okay my friends, I'm going to try be less controversial when I post political blogs. You know of my passion for freedom, and that comes from limited government. But, I'll try to avoid getting personal about the people in office. The message of truth and freedom will ring true.
For example: There seems to be two philosophical distinctions between left and right on the governance of our freedoms, including taxes and the very view people have about the machinations of government.
In regards to taxes:
Brit Hume said it best (I'm paraphrasing): "Republicans want to protect the Goose that lays the Golden Eggs. Liberals want to divide up the eggs---income redistribution."
Again, measure the real life effect with each approach.
More later, Wade
For example: There seems to be two philosophical distinctions between left and right on the governance of our freedoms, including taxes and the very view people have about the machinations of government.
In regards to taxes:
- Liberals want TEMPORARY, TARGETED taxes and an INCREASE IN SPENDING to solve all of our problems.
- Conservatives want PERMANENT, BROAD-BASED tax cuts, and a DECREASE IN SPENDING (In other words, limited government).
Brit Hume said it best (I'm paraphrasing): "Republicans want to protect the Goose that lays the Golden Eggs. Liberals want to divide up the eggs---income redistribution."
Again, measure the real life effect with each approach.
More later, Wade
Sunday, September 11, 2011
Revised blog address
The blogs previously viewed on wadecook22.blogspot.com will now be available on this page.
Please revise your bookmarks to reflect this change.
Thanks for reading and we would love to hear your comments.
Thanks,
Wade and family
Friday, September 9, 2011
STOCK MARKET, IS THE TIMING RIGHT NOW?
I've done a lot of reading and thinking lately. I think I can explain why the market hasn't moved up a lot in the last ten years. In fact, Microsoft might be a microcosm of the "why" behind this schlerotic market. I've stated repeatedly the observation that Microsoft (MSFT) is flat. It's been between $24 and $28 steadily for over this ten year stretch. Why?
So I'm reading everything I can get on this topic. I'm interested because the main focus of my endeavors is to write covered calls to generate income. If a stock is flat--perceived as going nowhere--the options are weak. To sell them you generate very little in premium. For example, a robust stock at $25 might have an October premium at $1.80. Even some stocks have option premiums near 10% of the stock price. Microsoft's option is 25 cents or 40 cents. That says no one thinks the stock is going anywhere. And for the time being, they're right. What would drive Microsoft up? It's one of the best run companies in the country. They make millions. I mean tens of millions---everyday. More on this after I make a macro case for the market.
One could look at the market in general---either the Dow 30 or even the S & P 500---over the last 5 years and it looks like one of my rolling stocks.
Right now there are 22 of the S & P 500 with stocks at a lower price than where they were ten years ago. Look at just a few of them:
This is amazing group of stocks. Let me weigh in on a few possible reasons for this and a few possible plays:
1) These are huge companies. They are worth billions of dollars. They have billions of shares outstanding. For example, anyone who wants to own Microsoft already owns it. What could they do to make more people want to buy their stock? Could they make another deal, say with some Chinese companies? That they are doing. Could they make more profits? That they are doing, quite robustly. Stocks are subject to rules, one being the law of supply and demand. They have a lot of supply, but right now the demand is not there.
2) One reason these stocks have not gone up is that they were too high ten years ago. We were at the end of the dot-com bubble. P/E ratios back then were 37 times, 68 times and 124 times earnings. I remember one stock at 2200 times earnings. Some were at N/A. There were no earnings. P/E is a division formula. You can't divide by zero. In a way E-Commerce took the E out of P/E. We've come a long way, but the stock prices lag.
3) Speaking of high and low P/Es. Look at the right hand column. Traditional P/Es, even for these high rollers is around 20 to 30 times earnings. A quick one sentence lesson on P/Es. The P/E number states how much money it costs to buy one dollar of earnings. If a company today has a P/E of 9.3, like Microsoft, it means you're paying $9.30 to get at $1 of profits. I remember when MSFT had a P/E of 35. And that was considered okay.
4) Everything returns to the NORM---meaning normal. If stocks typically trade at 19.2 times earnings, then sooner or later that ratio will return. Earnings will either go up to match up and justify the high ratio (making it normal) or the stock price will come down (making it normal). If you have $100,000 in the bank and earn a 3% interest, or $3,000 for the year, you have a P/E of 33 plus. It costs $33 to get at one dollar of earnings. If you get 5% interest, your P/E is 20 ($100,000 divided by $5,000 equals 20). See how simple it is. This bank example is important, because in some ways it's a good measuring stick. The hope of stock investing is not always to capture the income, but to have the stock increase in value.
5) Scan your eyeballs down the right column and you'll see some tremendously low P/Es. These stocks still may take years to go up substantially, but they are making money---lots of it---and even today a higher price is justified. For example, Microsoft could have a P/E of 27 (Three times nine) and the stock would be at three times its current $25, or $75. If it were there it would seem natural.
6) I think there are some good prospects. Now I'm going to look at book value, and see if any of these have a negative book value, making them even more tempting. Whirlpool, Gap and Computer Sciences look like good takeover candidates.
7) I like covered calls, in the 6% to 10% monthly cash flow range. Most of these are in the 5% range, and though good, there might be better cash flow stocks. Dell was at $14.02 today. The September $14 calls were 39 X 40 cents, 39 cents to sell. The October $14 calls were 88 cents to sell, or $880 if you had 1,000 shares. The $15 calls were 44 cents to sell.
8) Many of these stocks have a 2% plus dividend yield. They also have stong balance sheets, with most holding $4 to $6 per share in cash.
Years ago these stocks were firmly in the growth sector. Today they are defined as value stocks. I like the future of these companies, and I love the future of America, no matter the Liberal machinations to devalue our country and economy.
So I'm reading everything I can get on this topic. I'm interested because the main focus of my endeavors is to write covered calls to generate income. If a stock is flat--perceived as going nowhere--the options are weak. To sell them you generate very little in premium. For example, a robust stock at $25 might have an October premium at $1.80. Even some stocks have option premiums near 10% of the stock price. Microsoft's option is 25 cents or 40 cents. That says no one thinks the stock is going anywhere. And for the time being, they're right. What would drive Microsoft up? It's one of the best run companies in the country. They make millions. I mean tens of millions---everyday. More on this after I make a macro case for the market.
One could look at the market in general---either the Dow 30 or even the S & P 500---over the last 5 years and it looks like one of my rolling stocks.
Right now there are 22 of the S & P 500 with stocks at a lower price than where they were ten years ago. Look at just a few of them:
STOCK/TCKER PRICE 8-29-01 PRICE 8-29-11 RECENT P/E
BestBuy/BBY $26.86 $25.43 7.3
Nvidia/NVDA 14.05 13.36 13.3
Cisco Systems/CSCO 17.08 15.74 9.2
Texas Inst/TXN 34.05 26.16 11.2
Capital One/COF 56.68 45.39 6.3
MIcrosoft/MSFT 27.11 25.84 9.3
Xilinx/XLNX 37.95 31.21 14.5
Kla-Tencor/KLAC 49.75 36.86 9.0
JPMorgan Chase/JPM 39.57 37.64 7.5
Dell/DELL 21.80 14.97 7.4
H & R Block/HRB 19.45 14.95 9.1
Gap/GPS 19.70 16.74 11.0
Intel/INTC 28.1 20.30 8.5
Others include: FRX, AMGN, KSS, MDT, DOW, TSS, WHR, PAYX. (Source: Bespoke Investment Group)Nvidia/NVDA 14.05 13.36 13.3
Cisco Systems/CSCO 17.08 15.74 9.2
Texas Inst/TXN 34.05 26.16 11.2
Capital One/COF 56.68 45.39 6.3
MIcrosoft/MSFT 27.11 25.84 9.3
Xilinx/XLNX 37.95 31.21 14.5
Kla-Tencor/KLAC 49.75 36.86 9.0
JPMorgan Chase/JPM 39.57 37.64 7.5
Dell/DELL 21.80 14.97 7.4
H & R Block/HRB 19.45 14.95 9.1
Gap/GPS 19.70 16.74 11.0
Intel/INTC 28.1 20.30 8.5
This is amazing group of stocks. Let me weigh in on a few possible reasons for this and a few possible plays:
1) These are huge companies. They are worth billions of dollars. They have billions of shares outstanding. For example, anyone who wants to own Microsoft already owns it. What could they do to make more people want to buy their stock? Could they make another deal, say with some Chinese companies? That they are doing. Could they make more profits? That they are doing, quite robustly. Stocks are subject to rules, one being the law of supply and demand. They have a lot of supply, but right now the demand is not there.
2) One reason these stocks have not gone up is that they were too high ten years ago. We were at the end of the dot-com bubble. P/E ratios back then were 37 times, 68 times and 124 times earnings. I remember one stock at 2200 times earnings. Some were at N/A. There were no earnings. P/E is a division formula. You can't divide by zero. In a way E-Commerce took the E out of P/E. We've come a long way, but the stock prices lag.
3) Speaking of high and low P/Es. Look at the right hand column. Traditional P/Es, even for these high rollers is around 20 to 30 times earnings. A quick one sentence lesson on P/Es. The P/E number states how much money it costs to buy one dollar of earnings. If a company today has a P/E of 9.3, like Microsoft, it means you're paying $9.30 to get at $1 of profits. I remember when MSFT had a P/E of 35. And that was considered okay.
4) Everything returns to the NORM---meaning normal. If stocks typically trade at 19.2 times earnings, then sooner or later that ratio will return. Earnings will either go up to match up and justify the high ratio (making it normal) or the stock price will come down (making it normal). If you have $100,000 in the bank and earn a 3% interest, or $3,000 for the year, you have a P/E of 33 plus. It costs $33 to get at one dollar of earnings. If you get 5% interest, your P/E is 20 ($100,000 divided by $5,000 equals 20). See how simple it is. This bank example is important, because in some ways it's a good measuring stick. The hope of stock investing is not always to capture the income, but to have the stock increase in value.
5) Scan your eyeballs down the right column and you'll see some tremendously low P/Es. These stocks still may take years to go up substantially, but they are making money---lots of it---and even today a higher price is justified. For example, Microsoft could have a P/E of 27 (Three times nine) and the stock would be at three times its current $25, or $75. If it were there it would seem natural.
6) I think there are some good prospects. Now I'm going to look at book value, and see if any of these have a negative book value, making them even more tempting. Whirlpool, Gap and Computer Sciences look like good takeover candidates.
7) I like covered calls, in the 6% to 10% monthly cash flow range. Most of these are in the 5% range, and though good, there might be better cash flow stocks. Dell was at $14.02 today. The September $14 calls were 39 X 40 cents, 39 cents to sell. The October $14 calls were 88 cents to sell, or $880 if you had 1,000 shares. The $15 calls were 44 cents to sell.
8) Many of these stocks have a 2% plus dividend yield. They also have stong balance sheets, with most holding $4 to $6 per share in cash.
Years ago these stocks were firmly in the growth sector. Today they are defined as value stocks. I like the future of these companies, and I love the future of America, no matter the Liberal machinations to devalue our country and economy.
Thursday, September 8, 2011
October Options and Monthly Income
Fellow Weary Travelers,
I'm just about excited as can be. We sit around, we Happy Campers, and talk and plan and think about our futures. Then we come across a grouping of stocks, that if used in the right way, just might provide the income to let us and you retire.
In my last blog, I started by sharing a little information on writing covered calls. It is a workhorse strategy. Picking up where that left off, I offer the following:
What could $20,000 do for generating cash flow for the month of October? First, ask yourself a side question, which may become the main question if you really think about it: What would you like this money to do? What amount of income/cash flow would you want it to produce? What would you need to retire on, or at least let a mother or father retire and stay home with the kids? Would $2,000 do it? How about $3,000? Oh, do you need more?
The market closed since I wrote the last posting. FAS closed at $13.20 and the Sept $13 calls were $1.08 X $1.13. But look at the October's. They were/are $2.18 X $2.25.
EK was $2.99 (We'll round off to $3 for this discussion). The Sept $3 calls were 22 X 26 cents and the October $3 calls were 54 X 57 cents.
RENN was about the same, and Bank of America was about the same as RENN. So, here we go.
We'll start with $20,000. Let's keep it simple. We'll buy 1,000 shares of FAS and 2,000 shares of EK. I like both of these, but you should do your own research.
The shares of FAS will cost $13,200. By selling 10 contracts of the Oct $13 calls for $2.18, we take in $2,180. Okay so far?
Now, let's spend $6,000 on the 2,000 shares of EK, and then sell the October $3 calls for 54 cents times 2,000 and take in $1,080.
TOTALS: We've spent $19,200, meaning we could keep the extra money in reserve, or even use it to buy a few more hundred shares of EK. We take in $3,260 for selling the options. I'll wait for you to absorb that number.
Okay, are you back with me? Could you live on $3,000 plus per month? How much time did this take? About 20 to 30 minutes. Could you make more if you watched and used the buy-back on dips and double-dipped for extra cash flow? Indubitably. Should you still employ protective strategies, like the stop-loss? Yes.
But what am I not writing is just as important as all of this. This cash flow is created with two trades. You could do this as well with other stocks. This exercise also assumes that you need to take out the money to pay the bills. What if you did not need to do so, right now? Think, you have $3,260 in profit. You could, with those profits, buy another 1,000 shares of EK (or another stock) and simultaneously sell another ten contracts, generating another $540. The net cash flow popped up to $3,800.
And now for the BIGGIE. What if you used margin. You've heard my caveats about margin, but let's think big right now, and take a little extra risk. If you used margin, you could have doubled up on all of this. Your $20,000 could have purchased $40,000 (In this case about $38,000) worth of stock, and your income would be double the $3,260 (plus another $540, maybe) and be around $6,480. Now can you live on that? This is all based on your original $20,000. You can start with less.
These are good questions. From my first days teaching seminars and writing books, my meme has been to help people get together a grouping of assets that produce monthly income. I still contend, $20,000 to $30,000 used the right way, will do the retirement trick. Think what you can do with all that free time and extra money!
I remain, your humble friend, Wade
I'm just about excited as can be. We sit around, we Happy Campers, and talk and plan and think about our futures. Then we come across a grouping of stocks, that if used in the right way, just might provide the income to let us and you retire.
In my last blog, I started by sharing a little information on writing covered calls. It is a workhorse strategy. Picking up where that left off, I offer the following:
What could $20,000 do for generating cash flow for the month of October? First, ask yourself a side question, which may become the main question if you really think about it: What would you like this money to do? What amount of income/cash flow would you want it to produce? What would you need to retire on, or at least let a mother or father retire and stay home with the kids? Would $2,000 do it? How about $3,000? Oh, do you need more?
The market closed since I wrote the last posting. FAS closed at $13.20 and the Sept $13 calls were $1.08 X $1.13. But look at the October's. They were/are $2.18 X $2.25.
EK was $2.99 (We'll round off to $3 for this discussion). The Sept $3 calls were 22 X 26 cents and the October $3 calls were 54 X 57 cents.
RENN was about the same, and Bank of America was about the same as RENN. So, here we go.
We'll start with $20,000. Let's keep it simple. We'll buy 1,000 shares of FAS and 2,000 shares of EK. I like both of these, but you should do your own research.
The shares of FAS will cost $13,200. By selling 10 contracts of the Oct $13 calls for $2.18, we take in $2,180. Okay so far?
Now, let's spend $6,000 on the 2,000 shares of EK, and then sell the October $3 calls for 54 cents times 2,000 and take in $1,080.
TOTALS: We've spent $19,200, meaning we could keep the extra money in reserve, or even use it to buy a few more hundred shares of EK. We take in $3,260 for selling the options. I'll wait for you to absorb that number.
Okay, are you back with me? Could you live on $3,000 plus per month? How much time did this take? About 20 to 30 minutes. Could you make more if you watched and used the buy-back on dips and double-dipped for extra cash flow? Indubitably. Should you still employ protective strategies, like the stop-loss? Yes.
But what am I not writing is just as important as all of this. This cash flow is created with two trades. You could do this as well with other stocks. This exercise also assumes that you need to take out the money to pay the bills. What if you did not need to do so, right now? Think, you have $3,260 in profit. You could, with those profits, buy another 1,000 shares of EK (or another stock) and simultaneously sell another ten contracts, generating another $540. The net cash flow popped up to $3,800.
And now for the BIGGIE. What if you used margin. You've heard my caveats about margin, but let's think big right now, and take a little extra risk. If you used margin, you could have doubled up on all of this. Your $20,000 could have purchased $40,000 (In this case about $38,000) worth of stock, and your income would be double the $3,260 (plus another $540, maybe) and be around $6,480. Now can you live on that? This is all based on your original $20,000. You can start with less.
These are good questions. From my first days teaching seminars and writing books, my meme has been to help people get together a grouping of assets that produce monthly income. I still contend, $20,000 to $30,000 used the right way, will do the retirement trick. Think what you can do with all that free time and extra money!
I remain, your humble friend, Wade
Writing Covered Calls
I hope you are well. I'm very limited on the speed and timely accuracy of the news I get and the prices of stock and options on the stock, so you will have to check out the current prices yourself.
A blog or two ago, I mentioned I wanted to see how much oomph September Options had left. So, I set out this AM to work with a paper-trade amount of $20,000 and write covered calls. The attempt is to try to pick up 10% cash on the $20,000. Let's see what shakes out.
Simply put, Writing Covered Calls means you own stock (or buy it for this purpose) and then sell the fluff of options, giving someone the right to buy your stock at a price you pre-determine.
By selling an option you take on an obligation to sell (deliver) the stock anytime, on or before the expiration date, usually the third Friday of the month. It should be noted that there are now two or three expiration dates a month, especially in bigger traded stocks. Again, you sell and take in the cash now, and then whether you actually sell the stock or not, you get to keep the money.
For this exercise we will not do margin. For those of you who want to pick this up a little, remember you only have to put up half of the money if trading on margin, and your broker will loan you the other half, using the stock as collateral. It is a form of debt, and should be used sparingly. If you want those calculations, just double everything you read here---the cost of the stock and the option prices.
Here goes. We'll start with RenRen (RENN). The stock is at $7.25, and I think there is every indication the stock will settle in near the strike price of $7 around next Friday, the expiration date. The $7 call option was at 50 X 60 cents. We sell at the first (or lower) number.
RENN: 1,000 shares at $7.25 is $7,250 and we sell the calls for 50 cents, taking in $500.
ACCUMULATED TOTALS: $7,250, $500 in.
Next we'll do 2,000 shares of Eastman Kodak (EK) for $3.24, or $6,480 and sell the $3.50 call for 37 cents, taking in $740.
ACCUMULATED TOTALS: $13,730, $1,240.
Last we'll do 500 shares of FAS, an ETF (Exchange Traded Fund, in the Banking Sector), at $12.10. That's $5,060 and then sell the $12 call for 90 cents, taking in $450.
ACCUMULATED TOTALS: $18,790 into the stocks, with $1,690 in.
Well, with this batch of stocks we didn't make it to the 10%, or $2,000, but only $1,690. And just think, it's for 8 days.
I ignored getting called out and giving back the 25 cents in RENN or the 10 cents in FAS, but I also ignored the 26 cent gain in EK times 2000, or $520. With all of that we're very close to the $2,000.
And you should see the October numbers on these. I'll write more later. Also, margin investing, even for part of this, would put you way over the top.
I suggest you start thinking of retiring. For years, I've been teaching "Cash to Asset to Cash." My books and seminars have been about getting assets to produce income---the only way to fly.
If you need help on this, order my book, STOCK MARKET MONEY MACHINE. You can email me at cabdriver22@msn.com if you're interested in getting this book on covered calls.
A blog or two ago, I mentioned I wanted to see how much oomph September Options had left. So, I set out this AM to work with a paper-trade amount of $20,000 and write covered calls. The attempt is to try to pick up 10% cash on the $20,000. Let's see what shakes out.
Simply put, Writing Covered Calls means you own stock (or buy it for this purpose) and then sell the fluff of options, giving someone the right to buy your stock at a price you pre-determine.
By selling an option you take on an obligation to sell (deliver) the stock anytime, on or before the expiration date, usually the third Friday of the month. It should be noted that there are now two or three expiration dates a month, especially in bigger traded stocks. Again, you sell and take in the cash now, and then whether you actually sell the stock or not, you get to keep the money.
For this exercise we will not do margin. For those of you who want to pick this up a little, remember you only have to put up half of the money if trading on margin, and your broker will loan you the other half, using the stock as collateral. It is a form of debt, and should be used sparingly. If you want those calculations, just double everything you read here---the cost of the stock and the option prices.
Here goes. We'll start with RenRen (RENN). The stock is at $7.25, and I think there is every indication the stock will settle in near the strike price of $7 around next Friday, the expiration date. The $7 call option was at 50 X 60 cents. We sell at the first (or lower) number.
RENN: 1,000 shares at $7.25 is $7,250 and we sell the calls for 50 cents, taking in $500.
ACCUMULATED TOTALS: $7,250, $500 in.
Next we'll do 2,000 shares of Eastman Kodak (EK) for $3.24, or $6,480 and sell the $3.50 call for 37 cents, taking in $740.
ACCUMULATED TOTALS: $13,730, $1,240.
Last we'll do 500 shares of FAS, an ETF (Exchange Traded Fund, in the Banking Sector), at $12.10. That's $5,060 and then sell the $12 call for 90 cents, taking in $450.
ACCUMULATED TOTALS: $18,790 into the stocks, with $1,690 in.
Well, with this batch of stocks we didn't make it to the 10%, or $2,000, but only $1,690. And just think, it's for 8 days.
I ignored getting called out and giving back the 25 cents in RENN or the 10 cents in FAS, but I also ignored the 26 cent gain in EK times 2000, or $520. With all of that we're very close to the $2,000.
And you should see the October numbers on these. I'll write more later. Also, margin investing, even for part of this, would put you way over the top.
I suggest you start thinking of retiring. For years, I've been teaching "Cash to Asset to Cash." My books and seminars have been about getting assets to produce income---the only way to fly.
If you need help on this, order my book, STOCK MARKET MONEY MACHINE. You can email me at cabdriver22@msn.com if you're interested in getting this book on covered calls.
Wednesday's Market
We've had another great day in the market. The Dow was up 250 points. And if you look at the information/news it's almost all outside of corporate earnings---again, a classical red-light period. In fact, it's educational what a global economy we live in. Most of the increase was due to an easing of the European debt crisis. I still think the next two weeks will be tough.
But for now, we'll take good news where we can find it. Bank of America was up nicely. Check out FAS. I think it bears study.
I'll be back with you when I get more prices. I'll be writing a blog, attempting to make about $2,200 to $2,500 on $20,000 put up---FOR SEPTEMBER. No sweat for October.
Let me give one quick example. I don't know what RenRen (RENN) did today, but yesterday's closing prices showed the following: the stock was at $7.03. The October $7 calls were 90 cents to sell. Say, we buy 1,000 shares, costing $7,030. Now sell a covered call for 90 cents times 1000 (10 contracts of 100 each contract). Take in $900 cash now. You are selling to someone the right to buy your stock for $7 per share. You sell away the upside---everything above $7---but you're getting paid handsomely to take on this obligation. We're not buying options but selling them to the crazies who like to buy them.
This is an awesome cash flow. If you get called out you have to give back 3 cents per share or $30, but you get to keep the other $870. If the stock stays right around $7 and you don't get called out (sell), then you get to keep the whole $900, and you can then sell the November options, pocketing more cash.
You'll see similar numbers with BAC, MU, and others.
If the average family had three or four positions like this they could retire. 4 times $900 equals $3,600. That would be $28,000 straight up, or $14,000 on margin. It's a cash flow machine. When will you retire?
But for now, we'll take good news where we can find it. Bank of America was up nicely. Check out FAS. I think it bears study.
I'll be back with you when I get more prices. I'll be writing a blog, attempting to make about $2,200 to $2,500 on $20,000 put up---FOR SEPTEMBER. No sweat for October.
Let me give one quick example. I don't know what RenRen (RENN) did today, but yesterday's closing prices showed the following: the stock was at $7.03. The October $7 calls were 90 cents to sell. Say, we buy 1,000 shares, costing $7,030. Now sell a covered call for 90 cents times 1000 (10 contracts of 100 each contract). Take in $900 cash now. You are selling to someone the right to buy your stock for $7 per share. You sell away the upside---everything above $7---but you're getting paid handsomely to take on this obligation. We're not buying options but selling them to the crazies who like to buy them.
This is an awesome cash flow. If you get called out you have to give back 3 cents per share or $30, but you get to keep the other $870. If the stock stays right around $7 and you don't get called out (sell), then you get to keep the whole $900, and you can then sell the November options, pocketing more cash.
You'll see similar numbers with BAC, MU, and others.
If the average family had three or four positions like this they could retire. 4 times $900 equals $3,600. That would be $28,000 straight up, or $14,000 on margin. It's a cash flow machine. When will you retire?
Sunday, September 4, 2011
MILLIONAIRES AND BILLIONAIRES
Tell me why a very important segment of our population is being so demeaned, picked upon and looked down on by Washington Bureaucrats. This administration is amazing. I think they should give back the millions of dollars in political contributions given to them generously by these great achievers.
The IRS has released some very interesting numbers. When writing books, teaching seminars, and now in these blogs it's a cardinal rule to not use numbers---as in arithmatic. But one just has to if one wants to make sense out of the wonderful world of mathematics. Lately I coined the phrase, basicly given to Mr. Obama, "Mathemagician." He has a very elastic version of reality.
Let's talk about all of the recent attacks on our achievers. These are the people who create jobs, start businesses, invest money so others may do so---in short, the risk takers. Is this number growing or contracting? Let's get to the numbers.
From the dollar amounts provided by the President's IRS for the year 2007 and then 2009 an interesting tale unfolds before our very eyes. Oh I know you can see the dismal economy all around, probably on your way to work everyday. I know you've heard the rhetoric against the free enterprise system.
This first graph is the number of filers.While you read this ask yourself, does America need more or less successful people?
INCOME LEVEL 2007 2009 CHANGE
$200,000 and up 4,531,000 3,924,000 (-) 13%
$1,000,000 and up 390,000 237,000 (-) 39%
$10,000,000 and up 18,394 8,274 (-) 55%
TAXES PAID: The following numbers represent the taxes paid.
$200,000 and up $610 Billion $434 Billion (-) 29%
$1,000,000 and up $309 Billion $178 Billion (-) 57%
$10,000,000 and up $111 Billion $54 Billion (-) 51%
LIVID? One would think the Democrats/Liberals/Progressives would be livid with the President and the Democrats in Congress. They implement their policies and less taxes are taken in. Tax more, create uncertainty by imposing thousands of pages of new regulations plus hundreds of more felonies, and you have an economy on the track to nowhere.
Think of this: Millionaires are vanishing. Where are they going? They are staying home, or moving their money elsewhere. If only Liberals would quit using static models to make projections. Life is not static but very dynamic. Words, attacks, regulations have consequences. When will they ever learn?
The people who made $1,000,000 and up represent two-tenths of one percent (0.02%) but account for 20.4% of the income taxes paid. The next tier: Those making over $200,000 represent 3% of filers but paid 50.1% of the $866 Billion paid in taxes. Extrapolate that out: THE TOP 3% PAID MORE THAN THE BOTTOM 97%.
So we have a current gang in charge that have it all wrong. It was succinctly stated in the Wall Street Journal, sarcastically calling "Obamanomics" a raging success. "The best way to produce equality (Distribute Wealth) is to destroy Trillions of Dollars of wealth."
The IRS has released some very interesting numbers. When writing books, teaching seminars, and now in these blogs it's a cardinal rule to not use numbers---as in arithmatic. But one just has to if one wants to make sense out of the wonderful world of mathematics. Lately I coined the phrase, basicly given to Mr. Obama, "Mathemagician." He has a very elastic version of reality.
Let's talk about all of the recent attacks on our achievers. These are the people who create jobs, start businesses, invest money so others may do so---in short, the risk takers. Is this number growing or contracting? Let's get to the numbers.
From the dollar amounts provided by the President's IRS for the year 2007 and then 2009 an interesting tale unfolds before our very eyes. Oh I know you can see the dismal economy all around, probably on your way to work everyday. I know you've heard the rhetoric against the free enterprise system.
This first graph is the number of filers.While you read this ask yourself, does America need more or less successful people?
INCOME LEVEL 2007 2009 CHANGE
$200,000 and up 4,531,000 3,924,000 (-) 13%
$1,000,000 and up 390,000 237,000 (-) 39%
$10,000,000 and up 18,394 8,274 (-) 55%
TAXES PAID: The following numbers represent the taxes paid.
$200,000 and up $610 Billion $434 Billion (-) 29%
$1,000,000 and up $309 Billion $178 Billion (-) 57%
$10,000,000 and up $111 Billion $54 Billion (-) 51%
LIVID? One would think the Democrats/Liberals/Progressives would be livid with the President and the Democrats in Congress. They implement their policies and less taxes are taken in. Tax more, create uncertainty by imposing thousands of pages of new regulations plus hundreds of more felonies, and you have an economy on the track to nowhere.
Think of this: Millionaires are vanishing. Where are they going? They are staying home, or moving their money elsewhere. If only Liberals would quit using static models to make projections. Life is not static but very dynamic. Words, attacks, regulations have consequences. When will they ever learn?
The people who made $1,000,000 and up represent two-tenths of one percent (0.02%) but account for 20.4% of the income taxes paid. The next tier: Those making over $200,000 represent 3% of filers but paid 50.1% of the $866 Billion paid in taxes. Extrapolate that out: THE TOP 3% PAID MORE THAN THE BOTTOM 97%.
So we have a current gang in charge that have it all wrong. It was succinctly stated in the Wall Street Journal, sarcastically calling "Obamanomics" a raging success. "The best way to produce equality (Distribute Wealth) is to destroy Trillions of Dollars of wealth."
Saturday, September 3, 2011
FATHER KNOWS BEST
A lot of people mix money and politics. I do too. These two aspects of life seem to go hand-in-hand in so many handy ways. Lately I've been writing and commenting here about Warren Buffett and his company's investment in Bank of America. He's in the news.
I was reading other reports and came across the following copy of a speech given by Howard Buffett, Warren's father. This is from 1956 and it's like he's talking to us today.
"The last 40 years have seen a gigantic expansion of political power over economic affairs by the federal government. This change is linked by many scholars to the passage of the income tax law in 1913. This law revolutionized the taxing system in two ways:
1. It gave the government new powers over the economic status of the individual. This change has curtailed the ability of the individual to achieve economic independence.
2. The part of this production taken from the producer cumulatively increases the power of the federal government proportionately with the increase in its income. This power is not created; it is simply taken from the people. . . .
"George Sokolsky, noted columnist, says it this way: 'When human beings become dependent upon the political power of the state for their livelihood, the independence of person must disappear. It is the identification of economic with police power that destroys the right of individual liberty.'
The transfer of economic power into political hands takes many forms. In 1932 about 2.5 million people received a check from the government every month. Today (1956) about 20 million receive a government check every month. What is the effect on the freedom of this great segment of our people being more or less dependent on the political authorities for their daily bread? . . .
"Any discussion of the status of the economic foundation of freedom is incomplete without some attention to a historic human urge---the desire for security. This intense human desire is reflected in the so-called social legislation politicians have placed on our statute books.
"Will this legislation fulfill its promises? If you think so, consider this rarely mentioned fine print clause. If the government is to guarantee you the consequences of your actions will be in this case, security, then the government must take control of your activities. For with responsibility---even self-arrogated responsibility---must go authority. This means that if politicians are to supply your security, they must control your work, your spending, and your saving."
WARREN, LISTEN TO YOUR FATHER.
Please, you've made yours now be quiet and let the rest of us make ours. Your father had it right. You have chosen to buddy-up with the President in his devastating march toward socialism. Your recent comments about taxes are wrong (factually) and wrong-headed. Proverbs 23 is full of advice. A few chosen morsels. Verse 22: "hearken unto thy father that begat thee." Verse 23: " Buy the truth, and sell it not (nor do any truth-splits, my add); also wisdom, and instruction, and understanding."
____________________________________
More coming up after the Wall Street Journal comments on WARREN BUFFET'S TAX DODGE. The plot thickens.
I was reading other reports and came across the following copy of a speech given by Howard Buffett, Warren's father. This is from 1956 and it's like he's talking to us today.
"The last 40 years have seen a gigantic expansion of political power over economic affairs by the federal government. This change is linked by many scholars to the passage of the income tax law in 1913. This law revolutionized the taxing system in two ways:
1. It gave the government new powers over the economic status of the individual. This change has curtailed the ability of the individual to achieve economic independence.
2. The part of this production taken from the producer cumulatively increases the power of the federal government proportionately with the increase in its income. This power is not created; it is simply taken from the people. . . .
"George Sokolsky, noted columnist, says it this way: 'When human beings become dependent upon the political power of the state for their livelihood, the independence of person must disappear. It is the identification of economic with police power that destroys the right of individual liberty.'
The transfer of economic power into political hands takes many forms. In 1932 about 2.5 million people received a check from the government every month. Today (1956) about 20 million receive a government check every month. What is the effect on the freedom of this great segment of our people being more or less dependent on the political authorities for their daily bread? . . .
"Any discussion of the status of the economic foundation of freedom is incomplete without some attention to a historic human urge---the desire for security. This intense human desire is reflected in the so-called social legislation politicians have placed on our statute books.
"Will this legislation fulfill its promises? If you think so, consider this rarely mentioned fine print clause. If the government is to guarantee you the consequences of your actions will be in this case, security, then the government must take control of your activities. For with responsibility---even self-arrogated responsibility---must go authority. This means that if politicians are to supply your security, they must control your work, your spending, and your saving."
WARREN, LISTEN TO YOUR FATHER.
Please, you've made yours now be quiet and let the rest of us make ours. Your father had it right. You have chosen to buddy-up with the President in his devastating march toward socialism. Your recent comments about taxes are wrong (factually) and wrong-headed. Proverbs 23 is full of advice. A few chosen morsels. Verse 22: "hearken unto thy father that begat thee." Verse 23: " Buy the truth, and sell it not (nor do any truth-splits, my add); also wisdom, and instruction, and understanding."
____________________________________
More coming up after the Wall Street Journal comments on WARREN BUFFET'S TAX DODGE. The plot thickens.
Thursday, September 1, 2011
Market Performance
It's now Thursday. The market performed this week pretty much like my experiences told me it would. What about next week?
I think it will be a down market for the following reasons.
1) There's no good reason for it to go up. Where's the forklift to move the boxes? I don't see one.
2) We're in the summer doldrums, classically important red-light period. This means relatively low levels of news. We need to get to the next earnings season. That will happen as we move toward October.
3) Politics has the market a bit fearful. Never have we had such an anti-business administration, even worse than in the mid-1930s.
4) The tenth year anniversary is just around the corner, and so might be our next terror threat. I surely hope not but there have been statements which need to be taken seriously. After 9/11, and nothing has happened, we'll all breathe a sigh of relief.
5) If you are a bullish option player, these scenarios won't play out until after the September expiration date of the 16th.
6) The economy is not going anywhere quickly. I think this negative sentiment is already built into the market prices.
There's more, but this hits the highlights.
HOW TO PLAY?
1) If you are selling covered calls, sell in-the-money calls. Sell everything above the strike price you think the stock will move to---usually the strike price with the most open interest.
2) If you're trying to accumulate a few shares here and there, look for bargains. Read again my blogs on Bank of America/Buffett and see if that knowledge applies to your efforts.
I think it will be a down market for the following reasons.
1) There's no good reason for it to go up. Where's the forklift to move the boxes? I don't see one.
2) We're in the summer doldrums, classically important red-light period. This means relatively low levels of news. We need to get to the next earnings season. That will happen as we move toward October.
3) Politics has the market a bit fearful. Never have we had such an anti-business administration, even worse than in the mid-1930s.
4) The tenth year anniversary is just around the corner, and so might be our next terror threat. I surely hope not but there have been statements which need to be taken seriously. After 9/11, and nothing has happened, we'll all breathe a sigh of relief.
5) If you are a bullish option player, these scenarios won't play out until after the September expiration date of the 16th.
6) The economy is not going anywhere quickly. I think this negative sentiment is already built into the market prices.
There's more, but this hits the highlights.
HOW TO PLAY?
1) If you are selling covered calls, sell in-the-money calls. Sell everything above the strike price you think the stock will move to---usually the strike price with the most open interest.
2) If you're trying to accumulate a few shares here and there, look for bargains. Read again my blogs on Bank of America/Buffett and see if that knowledge applies to your efforts.
B of A/Buffett #5
Hello, my worthies,
I have some to add to the Buffett discussion. First let me state I admire Mr. Buffett's business acumen. I applaud his insights and strategic moves.
I first became aware of Berkshire Hathaway many years ago. One share back then was around $3,000. I bought a few shares. That was a weird phone call to my broker: "Can I buy two shares of BRK. I sold it at around $6,000, thinking it could not possibly go higher. I got back in at $12,000 and sold for $22,000. When it hit $30,000, they did a new IPO for a second class of stock, now called the B shares, as in BRK.B. These shares were pegged to the A shares (BRK.A) in a 30:1 ratio. As the A shares moved up to $36,000, the B shares would go for $1,200 plus change.
I bought some B shares, and sold them later at $2,200. They kept going up. The A shares hit about $130,000 per share recently. Yes, you read that right. Now, they've back off a bit, but they're still high. And the B Shares? Well first, they did a 50:1 stock split on the B shares. So they now trade at a 1,500:1 ratio in tandem with the A shares. I like these. You would own a piece of Americana---they own the Gecko, Burlington Northern Railroad, and dozens of other companies and hundreds of investments. It's like a Mutual Fund without all the fees. I think sometime in the future they may do a "Cram Down," and send everyone with the A shares, 1,500 of the B shares, effectively doing a 1,500 to 1 Stock Split. This probably won't happen until Warren is in the ground. I hear he doesn't like stock splits.
Okay, now to the point of this Blog. This is the week of their investment of $5,000,000,000 into Bank of America. I wrote previously about the Book Value of B of A. Remember that the Book Value, or Break-Up Value is based on GAAP, an accounting way of placing lower values on real assets. Berkshire Hathaway has billions of dollars of assets that are carried on their financial statements at a value way lower than their true value on the street. The book value is currently $98,700. When this was written last week, the stock was at $105,000 per share.
Now, in a Barron's article we learn that the A shares are trading at a 1.1 times book value. This is very low., and again, the book value stated is much lower than real life. For years the book value of BRK has been at 1.5 times. This means their stock, recently trading at $105,000, could have a stock price at near $150,000 and that would not be unusual.
My point, is that many companies trade at three times book value. I'm not saying anything about the direction of this stock, but a $200,000 to $250,000 share price would not be unreasonable. Obviously there are numerous other factors, P/E ratios, cash availability, expansion, etc., but this is one factor that should be taken seriously. I think this is a good move. Right now I think the play is on Bank of America, either as a hold, or a covered call candidate. Run it passed you advisors.
One more blog coming up on Mr. Buffet, unless something else comes up.
Thanks for participating.
Wade
I have some to add to the Buffett discussion. First let me state I admire Mr. Buffett's business acumen. I applaud his insights and strategic moves.
I first became aware of Berkshire Hathaway many years ago. One share back then was around $3,000. I bought a few shares. That was a weird phone call to my broker: "Can I buy two shares of BRK. I sold it at around $6,000, thinking it could not possibly go higher. I got back in at $12,000 and sold for $22,000. When it hit $30,000, they did a new IPO for a second class of stock, now called the B shares, as in BRK.B. These shares were pegged to the A shares (BRK.A) in a 30:1 ratio. As the A shares moved up to $36,000, the B shares would go for $1,200 plus change.
I bought some B shares, and sold them later at $2,200. They kept going up. The A shares hit about $130,000 per share recently. Yes, you read that right. Now, they've back off a bit, but they're still high. And the B Shares? Well first, they did a 50:1 stock split on the B shares. So they now trade at a 1,500:1 ratio in tandem with the A shares. I like these. You would own a piece of Americana---they own the Gecko, Burlington Northern Railroad, and dozens of other companies and hundreds of investments. It's like a Mutual Fund without all the fees. I think sometime in the future they may do a "Cram Down," and send everyone with the A shares, 1,500 of the B shares, effectively doing a 1,500 to 1 Stock Split. This probably won't happen until Warren is in the ground. I hear he doesn't like stock splits.
Okay, now to the point of this Blog. This is the week of their investment of $5,000,000,000 into Bank of America. I wrote previously about the Book Value of B of A. Remember that the Book Value, or Break-Up Value is based on GAAP, an accounting way of placing lower values on real assets. Berkshire Hathaway has billions of dollars of assets that are carried on their financial statements at a value way lower than their true value on the street. The book value is currently $98,700. When this was written last week, the stock was at $105,000 per share.
Now, in a Barron's article we learn that the A shares are trading at a 1.1 times book value. This is very low., and again, the book value stated is much lower than real life. For years the book value of BRK has been at 1.5 times. This means their stock, recently trading at $105,000, could have a stock price at near $150,000 and that would not be unusual.
My point, is that many companies trade at three times book value. I'm not saying anything about the direction of this stock, but a $200,000 to $250,000 share price would not be unreasonable. Obviously there are numerous other factors, P/E ratios, cash availability, expansion, etc., but this is one factor that should be taken seriously. I think this is a good move. Right now I think the play is on Bank of America, either as a hold, or a covered call candidate. Run it passed you advisors.
One more blog coming up on Mr. Buffet, unless something else comes up.
Thanks for participating.
Wade
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