Get Rich - Stay Rich - Investing for Monthly Income

Proof that Option Income Writing is a Winner

With a covered call and protective put strategy, you have a win – win- win –win situation.  Here is what happens when the underlying stock changes:

  • Stock price increases –      you win by keeping the premium and either rolling up your call to a higher strike price or letting the stock get assigned;
  • Stock price is unchanged – you win by keeping the premium and possibly the stock to write more calls against it in coming expiration months;
  • Stock price slightly declines – Your amount of premium received will cover a slight decrease in the stock price so you win and keep the stock for more call writes for income;
  • Stock price declines aggressively – the protective put will gain value as stock prices decline closer or through the put strike price while you keep the premium and stock for more writes.

If you use the covered call with a protective put, you can create a great wining trade.  This is better for writing calls against a stock several months as this will offset the cost of buying a put for protection.  The protective put should be at least six months ahead of the current call expiration month when initially purchased.   This allows the investor to spread the put cost over the six month period to increase the profitability of the trade.  For example, if the protective put cost $300 to buy, the cost will average $50 per month on average.  However, if you exit the covered call position before the put expires, you can sell the put to recoup some of its cost.

In the case of a significant price decline, the put will become more profitable as it will increase in value.  The call writer can buy back the sold call
for pennies and sell a new call at a lower strike price to get more premium income.  After a few months of this, the trade should be profitable.

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Are You Prepared for Retirement?

Americans dream of achieving their financial goals…

They want to buy their own home, pay off credit-card debt, build an emergency fund, and one day be able to retire comfortably.

According to a recent survey of 1,000 U.S. adults conducted by LendEDU – an online marketplace for financial services – retirement is one of the top priorities for Americans… But more than a third don’t think they’ll achieve it.

What Americans want most
According to LendEDU’s survey, these are the most important financial goals for Americans (more common answers at the top)…

  1. Buying a house or apartment
  2. Retirement
  3. Paying off credit-card debt
  4. Building an emergency fund

While one out of five respondents said retirement is their top financial goal, 39% of people believe they will never achieve it. As LendEDU notes, the trend changes depending on age…

When it came to the age of those respondents that lacked confidence in being able to retire, 52% were over the age of 54, 30% were between the ages of 45 and 54, and 15% fell between the ages of 35 to 44.

Doubts over the reality of being able to retire increased among respondents who are approaching retirement age. Millennials surveyed weren’t thinking about retirement as much as Baby Boomers. Instead, younger respondents predominately said buying a house or apartment is their top priority.

Here is your FIRE Plan

Increasing income in more traditional ways, such as through raises and new job opportunities, may have the greatest effect on how much someone saves for early retirement. They suggest staying competitive in the job market or asking for raises, but not necessarily juggling numerous jobs and burning out.

At Get Rich Investments, we strive to create monthly income from monthly dividend stocks, ETFs, CEFs, covered call trades and other investments. It is best to diversify your holding using multiple approaches.

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The Biggest Mistake New Call Writers Make

Covered call trading is not like directional trading which has an objective to time the movement of a stock in the direction it is moving.  Covered writing is a game of regular, incremental returns.  The covered call writer’s objective is to collect the option premium for income without taking any damage to the downside of owning the stock.  The secret to success for the call writer is to make smaller, more consistent returns compared to a advanced option trader who makes many bets waiting for a 50% – 100% winner.  The biggest mistake by new call writers is writing a stock solely to capture the fattest time value premiums.

To improve the chances of being successful, the call writer should focus on stock selection.  The covered call trader should focus on 3% monthly returns.  However, a 15% drawdown on a trade will require 5 months of 3% returns to recoup the loss and get back to even.  This is why the Monthly Income Plan focuses on 5 star stocks signaling high quality stocks.

Why avoid the fattest premiums for a measly 3% monthly return?  The short answer is that high premiums often signal high risk, and writing calls on these options without regard to stock quality will eventually decimate your trading account.  There are two reasons that value premium becomes high enough to offer big returns:

1)   The stock is volatile and implied volatility is in line with the stock, or

2)   Implied volatility (IV) is significantly higher than actual volatility.

Simply, the higher the rate of return, the higher either actual or implied volatility (or both) must be on the options.  If two stocks had volatility of 60% we would expect the option premiums to be roughly comparable.  What if one stock had an IV of 25%?  This indicates a market expectation of less volatility in the future but it also means the investor is not getting paid for the 60% volatility risk he is taking on.  If the other stock had IV of 80% then the investor must determine what is causing the IV to be higher than the 60% actual volatility.  This usually indicates that the market is expecting some new event on the stocks such as news, announcement, earning or more.

If the IV is in line with the stock volatility, then the options are priced fairly so the decision comes down to – do you want to invest in the stock.  The rule is to AVOID stocks with spiking IV and look for a different trade.  To be conservative, look to write calls on stocks with a volatility of 40% or less.  If you are experienced and seek more income, look for stocks with volatility between 40% and 60%.  Anything above 60% I would consider high risk so proceed with caution.  You should at least look at the volatility of the stock before you invest to know what the risk of the trade may be over the coming option period.

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Selling Time Value of Options

When selling time value, you will use a different philosophy than those stock investors looking for a stock to go up in price.  Your gains will come from the time value of the options you will sell.  This approach to stock selection is unusual.  Most investors use fundamental analysis or technical analysis while you will use the time value of s stock’s options, tempered by fundamentals and long-term hold principles.

Deciding to create a covered call trade requires choosing an expiration month and strike price.  Option strategies require making modifications during the life of an option trade.  The option expiration month you select will have significant impact on the success of any option trade.

There are at least four different expiration months available for every stock on which options trade.  Initially, the CBOE set up only four months for options but later LEAPS were introduced so it was possible for options to be traded for more than four months on stocks with LEAPS options.  When stock options first began trading, each stock was assigned to one of three cycles: January, February or March.  Stocks assigned to January cycles will offer options in the months of January, April, July and October.  The same quarterly sequence will hold for the February and March option cycles.  Under the new rules, the first two months are always available but for the later months the original option cycles are used.

To select a stock for your covered call portfolio, you must have available a current option chain list.  You can select the expiration month based on the time value of the stock options and the strike price.  Then, if the stock meets your stock selection criteria, but it as the underlying stock in your portfolio.

To get an annual return of 20% or more, you must find available options with time value that will produce a 2% return each month or 5% each three months on the price of the stock.  Using the option chain list, you can calculate the percentage of stock price that the time value represents.  Of all the optionable stocks, you can find at least 5 to 10 stocks to consider.  If the time value seems attractive, then look at the fundamental and technical analysis to make your decisions.

Personally, I like to sell an option in the current or next month with a time value return of no less than 3%.  However, I will caution all covered writers  to proceed with caution if the time value return is very high as usually there is something pending with the underlying stock such as a news event, earning  release and other items.  Volatility can play a significant role in the pricing of options so the higher priced time value options usually have a significantly higher volatility.

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What Option Open Interest Means to the Trader

Option open interest is the number of options contracts open in a specific option series.  Open interest serves as a measure of option liquidity in the underlying option series.  The higher the open interest, the tighter the bid/ask spreads will be so slippage in trades will be lower.  When looking at option series, you want to be sure open interest is at least 5,000 and that the bid/ask spreads are no larger than 20 point apart.

When net buying or selling occurs in the underlying security, the open interest will show this change in the same direction of trader moves.  Increases in call open interest indicate the underlying is advancing up while increases in put open interest indicate more selling pressure.

Here are some rules on how to interpret open interest levels for OTM calls and puts in relation to the stock’s price movement:

  • Growing OI in Calls – confirms strength of stock’s advance
  • Declining OI in Calls – bearish divergence of stock’s advance
  • Flat OI in Calls – slightly bearish as no additional support for stock advance
  • Growing OI in Puts – confirmation of stock’s decline
  • Declining OI in Puts – slightly bullish as no additional support for stock decline
  • Flat OI in Puts – slightly bullish as it is not confirming decline

The growing interest in OTM and ATM options will confirm the stocks continued movement in the same direction.  Basically, this means the traders who have
been right are still buying more options for continuing the same direction.  In comparison, when open interest falls it indicates that traders are leaving the trade so it will likely end the current movement.  Traders are taking their money off the table.

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The Magic Number to Save for Retirement

Financial advisors always dodge the question of how much to save for retirement. There are research papers that contradict each other. They suggest there is no magic number for all or “it depends” or “it’s complicated.” I don’t buy this malarkey from the industry. Here is what I suggest and how I fund my accounts.

Don’t give up hope. From most research there’s a pretty useful rule of thumb for all people: Count on your fingers and … Save 10% — now.

Between you and your employer, set aside at least 10% of your paycheck. If your employer contributes 3%, then your share is at least 7%. If the company kicks in 5%, then you save at least 5%. If your employer does nothing, set aside at least 10% of each paycheck on your own.

Of course, there will be times when you’re between jobs or you need your money for a pre-retirement-age emergency. In those cases, you can put your money in a Roth individual retirement account (IRA) account. That way, you can take your contributions out without penalty. (There are also Roth 401(k) accounts, though they have more complicated withdrawal rules.) Don’t let the fact that you might need money someday keep you from saving for retirement now.

At Get Rich, we follow a monthly stock dividend plan where we get monthly dividends. We invest in 10 to 30 different stocks, notes and CEFs to diversify our holdings. To prevent yourself from running out of money in the golden years, reinvest 10% of your dividends back into your accounts. Therefore, if you are living on the dividends, you get a pay raise each month! And, your capital can leave a legacy for your family forever. Lastly, it is passive income that can be created regardless of where you live and play.

Subscribe today to start your monthly income plan.

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Financial Independence, Retire Early with Passive Monthly Income

Many people are becoming part of the FIRE movement, which stands for “Financial Independence, Retire Early.” Americans across the country are dreaming of leaving the traditional workplace in their 30s and 40s by investing enough assets in the first decade or two of their careers so they can rely on this nest egg and its investment returns the rest of their lives. Financial independence, to many of these individuals, is the ability to leave a stressful job for a less lucrative one, even if it means making a few sacrifices along the way.

These participants use passive income to help them get to their goal, especially monthly dividend stocks and other income producing investments. They’re typically less risky than investing in individual company stocks but it takes longer to see growth. There is definitely no one solution that you should be in this proportion of stocks and bonds, nor should someone try to time the market. Be comfortable getting there slower through using compounding income.

Taxes are also an important component to planning for FIRE, and individuals looking for financial independence should leverage numerous retirement savings and investment vehicles instead of just one type. Some workers may want to take advantage of the high contribution limits of a 401(k) plan ($19,000 in 2019) as well as a Roth individual retirement account, which is funded with after-tax dollars and then grows and is withdrawn tax-free.

Increasing income in more traditional ways, such as through raises and new job opportunities, may have the greatest effect on how much someone saves for early retirement. They suggest staying competitive in the job market or asking for raises, but not necessarily juggling numerous jobs and burning out.

At Get Rich Investments, we strive to create monthly income from monthly dividend stocks, ETFs, CEFs, covered call trades and other investments. It is best to diversify your holding using multiple approaches.

Join the Monthly Income Newsletter voted the best value for monthly income.

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Beat the Market Pullback with Monthly Dividends

Here is the latest listing of monthly dividend stocks with high dividend yields. These investments can be used to create additional streams of income. remember, to diversify your investments across at least 5 or more stocks. You can conduct more detailed research into these opportunities before selecting the right stocks for your portfolio.

If wake of the market pullback, it is interesting to see what monthly dividend stocks performed the best. The S&P 500 is down over 6% in the past month due to the economic concerns around trade tariff and other issues. The list of EFTs paying monthly dividend below has performed the best during this period. As you can see, many are taxable bond funds which drives home the importance of having multiple monthly income payers diversified across several asset classes.

Don’t let the market volatility mess with your head. Income investors should continue to focus on dividends and buy more shares on these pullbacks. You should keep in mind the need to have diversification of assets and multiple streams of income.

Over the millennia, evolution has sensitized humans to danger. “Imagine that you’re a caveman and saw a horrible mauling by a bear on a certain path,” says Prof. Shiller. “That will stick in your mind and you will tend to think, ‘I’m going to avoid that path even if the bear isn’t there anymore.’ A path with delicious fruit will also stick in your mind, but that’s not as important to your survival, so it’s not as memorable.”

That doesn’t mean every investor will sell in a panic. It does mean investors who have witnessed a recent sharp decline are more likely to fear another in the near future.

 

CEFs with monthly dividend distribution 3

 

 

 

 

XAI OCTAGON FR & ALT INCOME TERM TRUST XFLT
FLAH&CRUM PREF INCOME OPPS PFO
COHEN & STEERS SELECT PREF & INCOME PSF
FLAH&CRUM PREF SECURITIES INCOME FFC
PIMCO CORPORATE & INCOME OPPS PTY
BLACKROCK TAXABLE MUNICIPAL BOND TRUST BBN
PIMCO DYNAMIC INCOME PDI
FIRST TRUST INTER DUR PREF & INCOME FUND FPF
GUGGENHEIM TAXABLE MUNI MANAGED DUR TR GBAB
PIMCO CORPORATE & INCOME STRATEGY PCN
MFS® GOVERNMENT MARKETS INCOME MGF
FIRST TRUST MLP & ENERGY INC FUND FEI
DREYFUS ALCENTRA GL CREDIT INCOME 2024 TARGET TERM FUND INC DCF

Three Steps to Early Retirement as a Millionaire

Notwithstanding a strong U.S. economy, only 25% of Americans say they feel financially prepared for retirement, according to a report just issued by the Certified Financial Planner Board of Standards. : Close to 80% of participants surveyed say they are not reassured that they have the best retirement savings strategies available to them. The good news is, three simple steps can help people build wealth and retire early.

While anyone can benefit from these action steps, they can be particularly powerful for financial independence and early retirement.

1. Pay yourself first

The single most important decision you’re going to make is to pay yourself first. This means, when you earn a paycheck, the first person who gets paid is you. Most people don’t do this even if they have employer matching funds. They focus on paying bills and other personal expenses without considering saving money.

2. Invest your savings

To be clear, simply saving a lot of money doesn’t make you rich. You have to have this money invested for growth. You cannot put this money in a money market or a CD, where it grows at 1% or 2%. You’ll never build wealth that way. We have created an investing plan to purchase monthly dividend stocks. These investments pay you a dividend check every month. Even better, we focus on yields above 10% to beat the market. How would you like 5, 10 or 30 checks coming to you each month?

3. Compound your wealth

When you receive your monthly income, reinvest a portion into new monthly dividend stocks. This grows your wealth over time, increases your income each month and offsets the impact of inflation. Also, this creates a lasting legacy as you are living from the dividends and not touching your capital.

The earlier you start, the better, thanks to the power of compound interest, which can cause your wealth to snowball over time. Yes, early retirement is possible as your monthly income exceeds your living expenses.

Create your legacy by joining our Monthly Income Plan today.

Option Selection for Covered Call Writing

Throughout the day, a person makes hundreds of decisions.  Paper or plastic? Double cheeseburger or salad?  Home brewed coffee or Starbucks Brew to Order?  And for option traders, which option to select from a large list of strike prices and expiration dates.

Option selection can be difficult especially for the new option investor.  Do you play a short-term or long-term option?  Do you take risk with OTM options or play it safe with DITM options?  Don’t let the selection process get too complicated for you.  Follow these three questions when making an option selection:

  1. What direction will the underlying stock go in the future?
  2. What are your expectations for the stock?
  3. What is your risk tolerance?

For the first question, don’t just guess where you think the stock will go in the next few months.  Look at the put/call ratio on the open interest tables.  Are there more calls than puts?  This indicates that investors feel the stock will rise.  If there are more puts than calls, then investors feel that the stock is going to decline.  You can use the put/call ratio to help determine the future direction of the stock.

The risk is in selecting the strike price of the option.  You have three choices: ITM, ATM and OTM.  Which one works for your stock?  An ITM has the highest price as it has intrinsic value because the stock price is higher than the option strike price.  This intrinsic value provides a spread for the option, making it less risky.   An ATM is when the stock price and option strike price are very close.  Generally, the price of the option is all time value and it has more premium than an OTM option.  This is the middle ground on the option risk scale.  The OTM option is the riskiest option play.  The option writer gets less premium income and takes on the risk that the stock will move higher to get a better return.  However, when the stock price does rise, OTM options have the greatest return.  You probably have heard about the more risk, higher return trade.

Now, you need to select what time to sell?  The more time the more premium income.  Selecting the right time to sell is up to the option trader.  Regular options are up to nine months and LEAPS are for up to 2 years.  You must decide how much premium you want to receive based on how long you want the trade to be.  For covered calls, most writers select the monthly option and repeat until called away.  However, this should be based on the objective of the covered call writer.

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. We focus on the Monthly Income Report which is published the weekend following option expiration each month. To supplement members, we will publish additional trades and income opportunities.

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