WHAT HAPPENS WHEN YOUR COVERED CALL STOCK GOES DOWN IN VALUE?
This report is about protecting yourself from the downside price movement of a stock, especially in stocks used for covered call writing. I have four strategies to share with you, but before I do, it needs to be understood that writing covered calls has a set of rules, that once understood and used, will help you avoid problems and make more money. The first thing you need to understand is that this is a cash flow strategy. We are not buying a stock at $6 hoping it will go to $60. If it does so, great, but that is not why we do this. Think monthly income, even income several times a month (See TWO-STEPPING, Part 4, coming soon).
You must know the why and the how of doing covered calls. "The person who knows how will always have a job; the person who knows why will always be the boss." (Diane Ravitch) Once you understand the why, then you'll realize that you can make just as much money on your $6 stock if the stock goes to $4. But I'm getting ahead of myself.
FOUR PROTECTIVE STRATEGIES
1) The first strategy to protect yourself from a downdraft in a stock price is this: "An ounce of prevention is better than a pound of cure." I know it's cliche, but it's true. People get a little angry when I say this: "If you think a stock is going to go down, or back off, then don't buy it." I too get angry.
Do your homework. Is the company making money? Does it have a P/E and/or are the earnings growing? This demonstrates a solid picture. The options say a lot about the stock. They should be about 6% to 10% of the stock price. An $8 stock should have an $8 call for a month out around 8%, mas o menos.
The best way I've found to find a good stock is to check the support level. You do this simply by looking at a chart. I like 6 month charts, but you may want to look at one going back a year. Say the stock trades between $8 and $10. It's been doing so for about nine months. Once in awhile it goes below $8, but every time it hits $7.60 it bounces off that number. I call this hard support. You can look at soft support, say a comfortable range, but I like hard support or a price the stock does not go below.
You can use any charting service. Most are free. Check out yahoofinance.com; bigcharts.com; or stockcharts.com. Your brokerage firm probably has a free charting service. Charts are like a map. Use them as such. Sure, the stock can break down more. EPILOGUE DOES NOT MEAN PROLOGUE. If you can, go back and check the news when a stock changed price---up or down---by a 10% to 20% move. There is always a reason for movement. Check the market at hand, especially red-light periods (no-news) or green-light periods (news, as in quarterly news times).
Looking at charts will reveal a lot about your personality. Are you an optimist? Then your thoughts will go in that direction. Sometimes it pays to be a pessimist, or at least a skeptic when looking at charts and trying to project movements. I heard an old expression once: "I'd rather want what I don't have than have what I don't want."
2) The second protective strategy is to practice trade, or what I call paper-trade or simu-trade, as in simulation trade. Practice with pretend money first. On paper, buy the stock, then sell the option or put in an order to sell the option at a certain price (Limit order). Many online accounts have a practice trade section, some with real time, streaming quotes.
Can you imagine a rookie baseball player making it to the majors the first day out? A few do, but not many. They work their way up through the minor leagues, working on their skills. Day in and day out they grind it out, sometimes for years. One of my favorite admonitions (because I received it from a wise person and have had to be reminded of it many times) is this: "Everything you have learned to do and do well, you were hand-trained by someone else." You don't learn to drive a car by reading a driver's ed manual. You don't learn how to ski by watching a video. You need to get in the game, but practice first.
This is one reason why I like blogging. It's lets me teach and share my knowledge. You can learn from my experiences which have cost me dearly. "Perfect practice makes perfect." Paper trade each strategy at least ten times, of which six in a row must be profitable, before you ever use real money. This will help you avoid mistakes. Oh, and keep paper trading even when you've invested all your money. You may be waiting for the next deal, or for money to come in, but whatever, paper-trading helps you stay alert, in-the-know, and on-the-go. When the money comes in, you're ready to take action.
3) This third strategy will save you from losing a lot of money most of the time if your stock goes down. It's called a "stop-loss." You place a stop-loss order when you are afraid the stock will go down past the point you don't want it to go to. It costs nothing to place the order and you can change it anytime.
Back to our $6 stock. It looks solid here, but you fear it may go down some more. You place an order to sell the stock if it hits $5.50. If it moves down to that price the computer will trigger a sale. You're out of the stock and in three days the money will be back into your account. There may be a problem with stop-loss orders in writing covered calls. Remember the word covered means you own the stock. Well now, if you sell your stock, you don't own it anymore. In most accounts, the brokerage firm will buy back the option for you. They will not let you stay in an uncovered position, unless you have secured the right to do so. I won't comment much more on this part of this topic, suffice it to say, you should ask and get the right to write uncovered calls. Now, I didn't say to write uncovered calls, where you don't own the stock. To do so, creates a new batch of risks and concerns. Some people only write uncovered calls. Good for them, but for the average investor, it's not worth it. It is a very bearish strategy. Why do it then? You could stay in an uncovered position for a day or two, just before expiration, let's say.. Now the stock hits the $5.50, and you're out of the stock. There's little chance you'll get called out at $6. Why spend 5 or 10 cents, $50 or $100 to buy back the option on Thursday, the day before expiration? Use this right sparingly.
Also, today, with the speed of computers, you can place a hard order to sell a stock at a certain price, and you can set alerts at a different price, or have your broker do so. You place a hard order to sell the stock at $5.50, but you have an alert at $5.60, so you can look at the whole picture, before your order goes off. This way you can make a better decisions. I really like alerts. They help a lot.
Another problem with stop-loss orders is this: you can get picked off in a second. The stock takes a brief dip, and your order goes off. You're out of the stock and the stock goes back up to $5.90 before the next commercial. You see, these market makers see all orders. They can drop down and pick you off before you know what happened. So set your order low enough to avoid this.
How do you choose the right price for your stop-loss order? I have found three ways. I disagree with the first way, but it's what everyone else teaches and writes about. I am also not fond of the second way.
A) Use a percentage you're happy with. Some say 10% of the stock price. Sorry, I don't like it.
This is an easy way to think of it, but it just doesn't make much sense.
B) Use a dollar amount. Some use the amount they made off the option, so they'll break even.
If they buy the stock for $6.00 and take in 60 cent for selling the option, they will subtract
the 60 cents for the $6, setting the stop-loss at $5.40. I'm okay with this, as I think it shows
some thinking and strategizing, but I think there is a better way.
C) Look at the charts. Find the support level, again what I call hard support. Now place the stop-
loss order just below that. Yes, just below that. Say the chart speaks to you. The hard support
looks like $5.20. It's only hit there twice in the last year. Now set the order at $5.10 or $5.00.
This works best for me.
One more point on this topic. If you have a stock you like, and you feel it's weak, sell the in-the-money call. I.e.., you stock has gone from $6 to $5.20. You're not sure of the direction, but the whole market feels weak, so sell the $5 call, not the $6 call. When you do so, you're selling everything above $5. It's more cash into your account.
AUTHOR'S NOTE:
There is one other aspect to this. Some say it's a good strategy. I've never been able to see the need for it. I've never seen it work the way people think it will. They say to take some of the option premium you've made from selling the option and using it to buy a lower strike price put. A put goes up in value if the stock goes down. Okay, I get it. But like a call, everything has to happen in a quick and timely manner, or you will lose. Example: Sell the $6 call for 75 cents, or $750. Now use $150 of that to buy the $4 put, protecting the downside. I ask: Why spend the $150 as it will probably be wasted money. If you were to sell the $5 or the $6 put, it might be better, but it would more than likely cost you all of the $650 you took in. I don't get it. I suggest the other strategies.
4) The fourth way is to quit being so pessimistic and look for an opportunity to make more money. I'll say it simply: You can make just as much money on a monthly basis with the stock at $6 as you did when the stock was at $8. I agree that no one wants to see their investment go down. In fact, many people bail out. That might be the right strategy if you've checked the news and other factors and think the stock may go down further.
Here's an example involving two of my friends. They participated in one of my tele-seminars and loved buying stocks and doing covered calls. They had purchased 1,000 shares of ELN for around $11 each, or $11,000 plus. Over the next year they made about $11,600 cash profits, or about 10% a month. Then the stock dropped to around $9. At first they were devastated. This down movement paralyzed them. They were stymied and did nothing for a few months, waiting for the stock to recover. I joined in their discussion and asked a question: "Why did you buy the stock? Was it to wait and hope it would go up to $20 or $100 a share, or was it to use as the asset, the base for covered call writing?" They answered that it was for generating monthly income. Back then I called it R.I.G. That stands for Repetitive Income Generator.
I had them look at the $8 calls and the $9 calls. The premiums were quite large. Oftentimes when a stock tanks the implied volatility goes up, fluffing up the options. They were still able to make $700 to $1,000 a month. To make the larger amount they had to double dip---work a little harder and make more.
I've said for years that one of the keys to wealth is to "grow out of your problems." As long as there are call options available, there is money to be made. So don't belly-ache, grow, increase---create your own stimulus package. And a quick note to all of you who have had stocks go down in price, and you're still holding them, FIGHT BACK. I call this a stock repair kit. It may take years to wait for you stock to recover lost ground. You don't have to be a victim of this downturn. You can develop the skills and pound cash back into your account. R.I.G. to the rescue!
Also, one other consideration. Say you have a $10 stock that is now sitting at $6. Maybe selling it and finding a better covered call stock is the way to go. It's all just inventory. Re-deploy your money where it will do the most good. Think like a cash flow millionaire.
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Copyright 2011 Epicenter, Inc. wadecook.blogspot.com. All Rights Reserved. Watch for news announcements.
Tuesday, October 25, 2011
Sunday, October 23, 2011
STOCK MARKET AND THE CLOUD
I read and watch the news, especially as it has to do with politics and investments. With every new technology or application of that technology, disparate effects arise. My thought is simple: "Could does not equal should." (See 1 Cor 10:23) Just because there is a new way to transfer news, and/or manipulate that news, does not mean you should give it equal weight.
Lately Twitter is the format for sparking interest in stocks. This is mainly garbage, and you should be careful. You have no idea what the proponents of a certain stock propagate, and what they're pushing.
Tweeting was for keeping in touch with your friends, and for a few movie stars. Even jocks would tweet from the end zone after scoring a touchdown. It has moved way beyond that. I've always said, "Consider the source. Watch out to whom you are listening." Now, tweets are everywhere, commenting on everything. Be careful where you get your advice. First, find out what everyone gets out of the deal. Second, always have a healthy level of skepticism. Challenge all facts and numbers.
Mike Hogan writing in Barron's said, these tweets create a "misdirection for the misguided." Later he called it just noise and "pointless babble." These words are meant for the mindless comments made by unknowledgeable people. However, keep in mind, it's not just about the people, it's about muddy thinking, possibly by agenda driven propagandists.
If I could get a tweet from Warren Buffet (definitely not about his taxing comments) or from Peter Lynch, or from that renowned author of "Wall Street Money Machine," I'd be very happy. Consider the source. Is the message important, well founded and timely?
I wonder how I'm viewed. I comment on what I think are good ways to create income. I don't look at the market to find the next hot stock. I want to find and share the next hot strategy, or use and explain how to apply these strategies for making extra income.
What do you think? How am I doing? Watch for an upcoming blog on my comments the first part of August 2011. You'll then see how I thought and vicariously played the market at hand.
Abundantly yours, Wade
Lately Twitter is the format for sparking interest in stocks. This is mainly garbage, and you should be careful. You have no idea what the proponents of a certain stock propagate, and what they're pushing.
Tweeting was for keeping in touch with your friends, and for a few movie stars. Even jocks would tweet from the end zone after scoring a touchdown. It has moved way beyond that. I've always said, "Consider the source. Watch out to whom you are listening." Now, tweets are everywhere, commenting on everything. Be careful where you get your advice. First, find out what everyone gets out of the deal. Second, always have a healthy level of skepticism. Challenge all facts and numbers.
Mike Hogan writing in Barron's said, these tweets create a "misdirection for the misguided." Later he called it just noise and "pointless babble." These words are meant for the mindless comments made by unknowledgeable people. However, keep in mind, it's not just about the people, it's about muddy thinking, possibly by agenda driven propagandists.
If I could get a tweet from Warren Buffet (definitely not about his taxing comments) or from Peter Lynch, or from that renowned author of "Wall Street Money Machine," I'd be very happy. Consider the source. Is the message important, well founded and timely?
I wonder how I'm viewed. I comment on what I think are good ways to create income. I don't look at the market to find the next hot stock. I want to find and share the next hot strategy, or use and explain how to apply these strategies for making extra income.
What do you think? How am I doing? Watch for an upcoming blog on my comments the first part of August 2011. You'll then see how I thought and vicariously played the market at hand.
Abundantly yours, Wade
Tuesday, October 18, 2011
TWO-STEPPING, Part 2
The blog I wrote yesterday has caused quite a stir. Thank you for your comments and questions. I honestly have enough to write 5 or 6 more blogs, and maybe this will be the start of a new book or study course. Your questions mean a lot to me, and they lead me along.
In the next few days I'll write about 1) the downside of a stock we choose to use for writing a covered call. More specifically, what we can do if the stock goes down in value; 2) Finding the right kind of stock; 3) Double-Dipping and extra monthly cash flow; 4) and other enhanced techniques for safety and generating even more income. It will be fun. Just because I listed all of this, please feel free to keep sending your questions.
I'm going to give several examples of stocks we looked at today. We'll buy some of these stocks and then sell out to the November expiration date call options, creating a covered call situation. These prices were as of about 12:30 PM, October 17th 2011. Later, as we move through these blogs, I'll bundle a group of stocks and use $20,000 as our cash invested. If you only have $2,000 then you start there. Even $300 extra per month can make a big difference.
Here we go: Bank of America (BAC, the ticker symbol) was $6.05 to buy. The Nov. $6 calls were going for 58 X 59 cents. Stop. We say that as 58 by 59 cents. The first number is the bid and the second number is the ask. Together, they are the bid and ask. If you wanted to buy the stock option at the asking or market price you would buy it for 59 cents.
ANOTHER DAY
I have to jump in here to tell you what just happened. Everything above was written yesterday. It's now the next day, Tuesday, Oct. 18th. We just had a class and divided the students up into 5 groups of 2 each. Each group started with $20,000 of "paper" money. I wanted them to go for the gusto. Me gusta le gusto! (A little Espanol and French awkwardly mixed together). Take the $20,000 on margin, making it $40,000 in buying-power and see how much they can make selling November options against these stock positions.
Here are the prices, as of the close today.
BAC $6.64 $6 c = .88 X .92
S (Sprint) $2.88 $3 c = ..26 X .27
RENN $5.65 $6 c = .45 X .50
EK (Eastman Kodak) $1.31 $1.50 c = .26 X .30
MU (Micron Technology) $5.77 $6 c = .42 X .44
FAS $12.83 $13 c = $1.46 X $1.50 (WOW)
YHOO $15.47 $16 c = $1.10 X $1.15
Okay, here's how it works. I'll give you an example and then challenge you to do some deals on paper. That's one of the great things about writing covered calls, you can paper trade, and you can measure you cash returns before you ever use real money. "Perfect Practice Makes Perfect."
Let's say you buy 2,000 shares of EK. 2,000 times $1.31 is $2,620. Now you sell 20 option contracts of the November $1.50 calls, giving someone the right to buy 2,000 shares of your stock at $1.50. Each contract represents 100 shares. They're going for 26 cents. 2,000 times .26 is $520. This is money you get into your account in one day. That's a nice cash income based on your $2,620, or $1,310 on margin.
The formula is simple: #1 Buy stock, as many shares as you like. Try to always buy in 100 share lots as the options are 100 shares for one contract. #2 Sell Option. Choose a strike price you like. With this one you could have sold the $1 calls for .46, and taken in $920 (.46 X 2,000=$920). But then you would have to give back the .31 cents if you got called out at $1. That would be $610 from the $920. This is okay, but I like selling slightly out-of-the money options. This means the strike price above the stock price.
Now you do one. Pick a stock. Multiply by the number of shares. Divide by two, for the margin amount. Yes, margin is risky, but this was a group of wild and crazy guys, young and daring, so why not be a little risky and risque. Now sell the options and the cash will be in your account tomorrow. Do you like it?
Here's what they came up with. One group used the whole $40,000 and made $4,450 and a little more if they got called out.
The next group made $4,750, but $4,450 if called out of one of the stocks they used. Two other groups were about the same. The last group, a couple of guys from Hawaii made $7,277. Hint: they bought 15,200 shares of EK and sold 152 contracts of the $1.50 calls for .26 each. They bought 3,500 shares of RENN and sold the $5 call, taking in a lot of money, but might have the need to give some back if called out. They're counting on doing a buy-back as time goes on. More on the buy-back in a future blog. Do the math yourself. You will soon have one of those AHAAA moments. These numbers and the buy-back create an awesome power strategy.
Look once more at their results. I'll ask the question again: Does this pique your interest? Does making over $4,000 a month on $20,000 get your attention? What if you only have $4,000 to invest, how does $800 a month extra sound?
These are real numbers. Check them out yourself. Can this strategy lift you out of the doldrums?
In the next few days I'll write about 1) the downside of a stock we choose to use for writing a covered call. More specifically, what we can do if the stock goes down in value; 2) Finding the right kind of stock; 3) Double-Dipping and extra monthly cash flow; 4) and other enhanced techniques for safety and generating even more income. It will be fun. Just because I listed all of this, please feel free to keep sending your questions.
I'm going to give several examples of stocks we looked at today. We'll buy some of these stocks and then sell out to the November expiration date call options, creating a covered call situation. These prices were as of about 12:30 PM, October 17th 2011. Later, as we move through these blogs, I'll bundle a group of stocks and use $20,000 as our cash invested. If you only have $2,000 then you start there. Even $300 extra per month can make a big difference.
Here we go: Bank of America (BAC, the ticker symbol) was $6.05 to buy. The Nov. $6 calls were going for 58 X 59 cents. Stop. We say that as 58 by 59 cents. The first number is the bid and the second number is the ask. Together, they are the bid and ask. If you wanted to buy the stock option at the asking or market price you would buy it for 59 cents.
ANOTHER DAY
I have to jump in here to tell you what just happened. Everything above was written yesterday. It's now the next day, Tuesday, Oct. 18th. We just had a class and divided the students up into 5 groups of 2 each. Each group started with $20,000 of "paper" money. I wanted them to go for the gusto. Me gusta le gusto! (A little Espanol and French awkwardly mixed together). Take the $20,000 on margin, making it $40,000 in buying-power and see how much they can make selling November options against these stock positions.
Here are the prices, as of the close today.
BAC $6.64 $6 c = .88 X .92
S (Sprint) $2.88 $3 c = ..26 X .27
RENN $5.65 $6 c = .45 X .50
EK (Eastman Kodak) $1.31 $1.50 c = .26 X .30
MU (Micron Technology) $5.77 $6 c = .42 X .44
FAS $12.83 $13 c = $1.46 X $1.50 (WOW)
YHOO $15.47 $16 c = $1.10 X $1.15
Okay, here's how it works. I'll give you an example and then challenge you to do some deals on paper. That's one of the great things about writing covered calls, you can paper trade, and you can measure you cash returns before you ever use real money. "Perfect Practice Makes Perfect."
Let's say you buy 2,000 shares of EK. 2,000 times $1.31 is $2,620. Now you sell 20 option contracts of the November $1.50 calls, giving someone the right to buy 2,000 shares of your stock at $1.50. Each contract represents 100 shares. They're going for 26 cents. 2,000 times .26 is $520. This is money you get into your account in one day. That's a nice cash income based on your $2,620, or $1,310 on margin.
The formula is simple: #1 Buy stock, as many shares as you like. Try to always buy in 100 share lots as the options are 100 shares for one contract. #2 Sell Option. Choose a strike price you like. With this one you could have sold the $1 calls for .46, and taken in $920 (.46 X 2,000=$920). But then you would have to give back the .31 cents if you got called out at $1. That would be $610 from the $920. This is okay, but I like selling slightly out-of-the money options. This means the strike price above the stock price.
Now you do one. Pick a stock. Multiply by the number of shares. Divide by two, for the margin amount. Yes, margin is risky, but this was a group of wild and crazy guys, young and daring, so why not be a little risky and risque. Now sell the options and the cash will be in your account tomorrow. Do you like it?
Here's what they came up with. One group used the whole $40,000 and made $4,450 and a little more if they got called out.
The next group made $4,750, but $4,450 if called out of one of the stocks they used. Two other groups were about the same. The last group, a couple of guys from Hawaii made $7,277. Hint: they bought 15,200 shares of EK and sold 152 contracts of the $1.50 calls for .26 each. They bought 3,500 shares of RENN and sold the $5 call, taking in a lot of money, but might have the need to give some back if called out. They're counting on doing a buy-back as time goes on. More on the buy-back in a future blog. Do the math yourself. You will soon have one of those AHAAA moments. These numbers and the buy-back create an awesome power strategy.
Look once more at their results. I'll ask the question again: Does this pique your interest? Does making over $4,000 a month on $20,000 get your attention? What if you only have $4,000 to invest, how does $800 a month extra sound?
These are real numbers. Check them out yourself. Can this strategy lift you out of the doldrums?
MOLLY AND THE LIMIT ORDER
Let me take a moment and explain the difference between a limit order and a market order. I will give you the punch line first. If you are new to trading you should avoid market orders, especially in a fast moving market. And even more so, if you need to watch every penny. There are times for market orders, but very few.
A market order tells your broker or online service to go buy a stock or option no matter the current price. You will get the "next best fill."
A limit order is just what it says. You limit the price. You place your order for the stock or option at a set price, to buy or sell. If the security does not hit that price, you will not get filled.
Your broker has a fiduciary responsibility, and his computer will act this way, to get you the best possible price, even if it is a little different than your limit price, but it always has to be different in your favor. Say you're trying to buy a stock for $6.60. It's currently at $7. It would take a 40 cent down draft to get hit. Now, in a fast moving market, it moves quickly to $6.40. If you did not get filled at $6.50 which is normally the case, as computers are so fast today, you will get filled at $6.40---the next best fill. It is assumed that if you want the stock at $6.60, you'll love it at $6.40. If you had in a market order, you probably would have gotten filled at around $7. If the stock is moving slow it probably doesn't matter the type of order. You can watch and jump in at a price you like.
This is the same with buying options and/or selling options, as in covered call writing. I was writing to one student and she chased an option with limit orders. The Dow was moving fast and she wanted the $114 calls, she tried to get them at $1.30, it moved. Then she tried to get them at $1.50, and it moved through that price and she missed it again. She really wanted them. There is the exception to the above rule. If you really, really want them, change it to a market order. Make sure you're on the same page as your broker. "Get them!!!" Means a market order. You don't care if you pay $1.30 or $1.50---you just want them. Why? In that fast moving period, the option went up $1.00 or so, and she could have gotten out already with near a double.
Oh well, live and learn. There will be more trades tomorrow. Hang in there Molly. We all love you.
Wade
A market order tells your broker or online service to go buy a stock or option no matter the current price. You will get the "next best fill."
A limit order is just what it says. You limit the price. You place your order for the stock or option at a set price, to buy or sell. If the security does not hit that price, you will not get filled.
Your broker has a fiduciary responsibility, and his computer will act this way, to get you the best possible price, even if it is a little different than your limit price, but it always has to be different in your favor. Say you're trying to buy a stock for $6.60. It's currently at $7. It would take a 40 cent down draft to get hit. Now, in a fast moving market, it moves quickly to $6.40. If you did not get filled at $6.50 which is normally the case, as computers are so fast today, you will get filled at $6.40---the next best fill. It is assumed that if you want the stock at $6.60, you'll love it at $6.40. If you had in a market order, you probably would have gotten filled at around $7. If the stock is moving slow it probably doesn't matter the type of order. You can watch and jump in at a price you like.
This is the same with buying options and/or selling options, as in covered call writing. I was writing to one student and she chased an option with limit orders. The Dow was moving fast and she wanted the $114 calls, she tried to get them at $1.30, it moved. Then she tried to get them at $1.50, and it moved through that price and she missed it again. She really wanted them. There is the exception to the above rule. If you really, really want them, change it to a market order. Make sure you're on the same page as your broker. "Get them!!!" Means a market order. You don't care if you pay $1.30 or $1.50---you just want them. Why? In that fast moving period, the option went up $1.00 or so, and she could have gotten out already with near a double.
Oh well, live and learn. There will be more trades tomorrow. Hang in there Molly. We all love you.
Wade
Sunday, October 16, 2011
CASH FLOW and TWO-STEPPING YOUR MONEY
I want to share an idea with you about a different way of thinking about wealth---from enhancing your assets, generating excess income, all the way down to paying bills. Maybe you've heard this before---two-stepping your wealth. This means using money, cash, assets, or whatever, to solve your financial needs, but in a two step process. Here's a scenario:
Gloria has trememdous needs for money. She's behind on everything, and some of the creditors are getting forceful. But help is around the corner. She is getting a gift from Aunt Emily of $10,000. That's enough to make a big dent in her obligations, and definitely will keep the wolf away from the door. However, it's not quite enough to pay off everything. She thinks and thinks. It's better to pay some now, even though she can't pay it all. That's the way most people think. Soon the money will be all gone, and that's it. It's gone. She will feel good for a few weeks.
Let me share another way of thinking: using assets, and the cash it can produce to get out of this problem. It's what I call "cash-to-asset-to-cash." I like it because it lets you grow out of your problems. And on the other side of the next couple of weeks, Gloria won't be left with receipts and still a lot of problems. Grow. Do More. Be More. In short, put your money to work for you.
I love writing covered calls. It gets assets producing income. You can make cash dollars of about 10% to 20% per month. Yes, per month, and maybe more as you get more skilled. I won't explain the whole process here, as I've written much elsewhere, especially in my book, STOCK MARKET MONEY MACHINE. Plus I load up these blogs with real deals that Gloria can copy. With $10,000 you can buy $20,000 worth of stock. It's called margin investing. The broker puts up the other half and uses the stock as collateral. Gloria doesn't like margin, so she'll use it sparingly.
She buys 1,000 shares of FAS (An Exchange Traded Fund in the financial sector). The options are nice. She pays out the whole $10,000 as the stock is $9.80 now. That's $9,800, plus she'll have commissions. Now she sells the November $10 call options, giving someone the right to buy her stock at $10, or $10,000. Those options were $1.85 to sell. She has 1,000 shares so she can sell 1,000 options, taking in $1,850. These are real numbers, though a few days old as of this writing. She now takes out the $1,850---all of it or part of it---and pays the urgent bills. This transaction took about 3 or 4 minutes---and it all happened on the day she received the $10,000 and put it into her account. The option money---that great amount of $1,850---hit her account the next day. She can pick up a check, have it wired to her account, whatever. It's her money to spend.
The other bills? Well the $1,850 went along way to paying the emergencies. In fact she has enough to take her husband and the kids to a nice night out. My advice: Don't spend the principal, spend the profits. She has 20% of her bills paid and she has an asset, this time FAS, still in to account, ready to go to work next month. We do this with several stocks of which many are household names.
Now what happens? Without explaining the buy-back and all the other great "covered call" strategies, suffice it to say, she waits until the third Friday of November. She either sells the stock at $10 (gets called out) or not. Either way she gets to keep the $1,850 and she has the stock in her account or the $10,000. She does it again. This month, for December and Christmas, she takes in only $1,600 for selling the option. She pays off another $1,200 in bills and lives to fight another day. At this rate, all of her bills will be paid by April. AND SHE WILL STILL HAVE THE $10,000 (maybe more) IN HER ACCOUNT GENERATING MORE MONTHLY INCOME.
Grow out of your problems. Spend the profits, not the principle. Get assets producing income. Why don't more people do this? (1) They do not know what is available. This may be the first and only time they have heard of writing covered calls. (2) They only think of traditional bank accounts. Take $10,000 and put it in the bank at 3% and you get $300 for a whole year, NOT $1,850 or so every month. (3) No matter how safe and good this strategy, many people feel inadequate when it comes to financial things. That is why I blog, trying to help. (4) They have already mentally spent the money before they ever get it. They don't think of using the money to produce immediate, large and consistent profits. (5) The clamor for action is "NOW" and they grab at straws, not realizing the straws are temporary. They don't think ahead to permanent solutions.
Here's your problem, my dear readers. If you don't do something like this the money will be gone. It will not be available to work for you on a continuous basis. It is a wise person who realizes a need for an extra source of cash flow. Imagine what retired people can do with an extra $1,650 coming in every month. Imagine a young married couple, taking all their wedding money gifts and putting it to work this way. It's a way to put financial problems in your rear-view mirror.
John Wooden said: "Discipline yourselves and others won't have to." Many people lack the discipline to two-step their money, and their lack of knowledge and discipline exacts a very high price. Think of the life changing strategy that makes money for you so you won't have to keep working and stressing. "If you think education is expensive, try ignorance." ~~Derek Bok
Is there anything here that piques your interest? Yes, you'll have to learn, but you are just three to four hours from understanding the basics. There is help available. I spend a lot of time helping people get through the learning curve. Also, I do not get anything out of what you do therefore I can teach in an unbiased way. You learn, you earn.
You'll also soon realize that there are power-strategies to help you make even more. A quick example: If you had purchased 2,000 shares of the preceding stock, you would have done so with the same $10,000, now some on margin. You could have sold double the amount, generating $3,700 on your $10,000. Okay, does this get you interested to learn more? A little more risk, a substantially greater reward. And you do all of this in your pajamas and taking care of the kids.
Opportunities come and go. We all need education that gives more than it costs. Many people however hang on to their past so tightly that their arms tire and they fail to grasp these new opportunities. This is your time for your own economic stimulus program, your own economic recovery. Please don't judge this process by your knowledge level now. Judge it by us and what we can teach you. "When the student is ready, the teacher appears." We're ready, are you?
Henry Ford said: "If you think money is your hope for independence you will never have it. The only real hope that a man or woman will have in this world, is an abundance of knowledge, experience and abilities." To me, these traslate into skills, and we're here to help develop yours. Our success is not determined by what we put into people, but by what they get out of what we teach.
Copyright 2011 Epicenter, Inc. All Rights Reserved.
Gloria has trememdous needs for money. She's behind on everything, and some of the creditors are getting forceful. But help is around the corner. She is getting a gift from Aunt Emily of $10,000. That's enough to make a big dent in her obligations, and definitely will keep the wolf away from the door. However, it's not quite enough to pay off everything. She thinks and thinks. It's better to pay some now, even though she can't pay it all. That's the way most people think. Soon the money will be all gone, and that's it. It's gone. She will feel good for a few weeks.
Let me share another way of thinking: using assets, and the cash it can produce to get out of this problem. It's what I call "cash-to-asset-to-cash." I like it because it lets you grow out of your problems. And on the other side of the next couple of weeks, Gloria won't be left with receipts and still a lot of problems. Grow. Do More. Be More. In short, put your money to work for you.
I love writing covered calls. It gets assets producing income. You can make cash dollars of about 10% to 20% per month. Yes, per month, and maybe more as you get more skilled. I won't explain the whole process here, as I've written much elsewhere, especially in my book, STOCK MARKET MONEY MACHINE. Plus I load up these blogs with real deals that Gloria can copy. With $10,000 you can buy $20,000 worth of stock. It's called margin investing. The broker puts up the other half and uses the stock as collateral. Gloria doesn't like margin, so she'll use it sparingly.
She buys 1,000 shares of FAS (An Exchange Traded Fund in the financial sector). The options are nice. She pays out the whole $10,000 as the stock is $9.80 now. That's $9,800, plus she'll have commissions. Now she sells the November $10 call options, giving someone the right to buy her stock at $10, or $10,000. Those options were $1.85 to sell. She has 1,000 shares so she can sell 1,000 options, taking in $1,850. These are real numbers, though a few days old as of this writing. She now takes out the $1,850---all of it or part of it---and pays the urgent bills. This transaction took about 3 or 4 minutes---and it all happened on the day she received the $10,000 and put it into her account. The option money---that great amount of $1,850---hit her account the next day. She can pick up a check, have it wired to her account, whatever. It's her money to spend.
The other bills? Well the $1,850 went along way to paying the emergencies. In fact she has enough to take her husband and the kids to a nice night out. My advice: Don't spend the principal, spend the profits. She has 20% of her bills paid and she has an asset, this time FAS, still in to account, ready to go to work next month. We do this with several stocks of which many are household names.
Now what happens? Without explaining the buy-back and all the other great "covered call" strategies, suffice it to say, she waits until the third Friday of November. She either sells the stock at $10 (gets called out) or not. Either way she gets to keep the $1,850 and she has the stock in her account or the $10,000. She does it again. This month, for December and Christmas, she takes in only $1,600 for selling the option. She pays off another $1,200 in bills and lives to fight another day. At this rate, all of her bills will be paid by April. AND SHE WILL STILL HAVE THE $10,000 (maybe more) IN HER ACCOUNT GENERATING MORE MONTHLY INCOME.
Grow out of your problems. Spend the profits, not the principle. Get assets producing income. Why don't more people do this? (1) They do not know what is available. This may be the first and only time they have heard of writing covered calls. (2) They only think of traditional bank accounts. Take $10,000 and put it in the bank at 3% and you get $300 for a whole year, NOT $1,850 or so every month. (3) No matter how safe and good this strategy, many people feel inadequate when it comes to financial things. That is why I blog, trying to help. (4) They have already mentally spent the money before they ever get it. They don't think of using the money to produce immediate, large and consistent profits. (5) The clamor for action is "NOW" and they grab at straws, not realizing the straws are temporary. They don't think ahead to permanent solutions.
Here's your problem, my dear readers. If you don't do something like this the money will be gone. It will not be available to work for you on a continuous basis. It is a wise person who realizes a need for an extra source of cash flow. Imagine what retired people can do with an extra $1,650 coming in every month. Imagine a young married couple, taking all their wedding money gifts and putting it to work this way. It's a way to put financial problems in your rear-view mirror.
John Wooden said: "Discipline yourselves and others won't have to." Many people lack the discipline to two-step their money, and their lack of knowledge and discipline exacts a very high price. Think of the life changing strategy that makes money for you so you won't have to keep working and stressing. "If you think education is expensive, try ignorance." ~~Derek Bok
Is there anything here that piques your interest? Yes, you'll have to learn, but you are just three to four hours from understanding the basics. There is help available. I spend a lot of time helping people get through the learning curve. Also, I do not get anything out of what you do therefore I can teach in an unbiased way. You learn, you earn.
You'll also soon realize that there are power-strategies to help you make even more. A quick example: If you had purchased 2,000 shares of the preceding stock, you would have done so with the same $10,000, now some on margin. You could have sold double the amount, generating $3,700 on your $10,000. Okay, does this get you interested to learn more? A little more risk, a substantially greater reward. And you do all of this in your pajamas and taking care of the kids.
Opportunities come and go. We all need education that gives more than it costs. Many people however hang on to their past so tightly that their arms tire and they fail to grasp these new opportunities. This is your time for your own economic stimulus program, your own economic recovery. Please don't judge this process by your knowledge level now. Judge it by us and what we can teach you. "When the student is ready, the teacher appears." We're ready, are you?
Henry Ford said: "If you think money is your hope for independence you will never have it. The only real hope that a man or woman will have in this world, is an abundance of knowledge, experience and abilities." To me, these traslate into skills, and we're here to help develop yours. Our success is not determined by what we put into people, but by what they get out of what we teach.
Copyright 2011 Epicenter, Inc. All Rights Reserved.
Friday, October 14, 2011
STOCK MARKET MOVEMENT
Yesterday, Thursday, when the market took a brief respite, my calculations told me that it would go up today. It is now officially earnings season. It's a new period---what I call a green-light period. Now, the news could be bad, but there are so many American companies making so much money. It looks good, but remember it's not always the actual numbers, but the commentary about the numbers.
The adage is powerful that says: "A stock price today is based on the anticipation of future earnings." So, what some companies do is say things like: "We're doing well. We beat our estimates, but the next quarter (year) looks tough. Competition is up and expansion uncertain." Focus on the commentary.
Now, for next week? I think up, but I really don't have a feel yet. It will be up based on the earnings season, but any bad news, even international, could drive it down.
I'll get some closing prices later and comment on covered call possibilities at that time. The question is to do or not to do October Strike prices, or move out to November. My rule of thumb is to take what is on the table before you. November will be there after next Friday.
Happy Investing.
Wade
The adage is powerful that says: "A stock price today is based on the anticipation of future earnings." So, what some companies do is say things like: "We're doing well. We beat our estimates, but the next quarter (year) looks tough. Competition is up and expansion uncertain." Focus on the commentary.
Now, for next week? I think up, but I really don't have a feel yet. It will be up based on the earnings season, but any bad news, even international, could drive it down.
I'll get some closing prices later and comment on covered call possibilities at that time. The question is to do or not to do October Strike prices, or move out to November. My rule of thumb is to take what is on the table before you. November will be there after next Friday.
Happy Investing.
Wade
Wednesday, October 12, 2011
STOCK TRADE UPDATE
I like these trades on the Dow---using ticker symbol DIA. I haven't heard from Molly in the past few days. I heard she was traveling. However, I thought I'd weigh in on a few potential exit strategies.
Reminder: Molly played straight options on the whole market---at least the Dow. She bought call options on the DIA---and ETF, or Exchange Traded Fund. This ETF is a stock with $1 incremental strike prices. The stock trades at 1/100 of the Dow, plus a few pennies. For example, if the DOW is going for 11,240, DIA stock will be at $112.42. You can buy puts or calls; you can do spreads; and you can own the stock and write covered calls.
Simply put, it's a way to trade the whole Dow, which again, I think is the most widely followed Index in the world. I also think the whole market is in a rolling pattern. Why? Because it's range-bound. It has pretty solid support on the downside and pretty stable resistance on the top-side.
Reminder: Molly played straight options on the whole market---at least the Dow. She bought call options on the DIA---and ETF, or Exchange Traded Fund. This ETF is a stock with $1 incremental strike prices. The stock trades at 1/100 of the Dow, plus a few pennies. For example, if the DOW is going for 11,240, DIA stock will be at $112.42. You can buy puts or calls; you can do spreads; and you can own the stock and write covered calls.
Simply put, it's a way to trade the whole Dow, which again, I think is the most widely followed Index in the world. I also think the whole market is in a rolling pattern. Why? Because it's range-bound. It has pretty solid support on the downside and pretty stable resistance on the top-side.
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