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Posts Tagged ‘best covered call writing’

Why Buy and Hold Investing Doesn’t Work for All

If you are starting your investing journey than you should consider the best methodology to achieve your objectives. Some popular theories include John Bogle suggesting to buy 50% in a stock index and 50% in a bond index. This is a set and forget move that only requires periodic rebalancing. I am sure this works for many investors. Then, there is the buy stocks for the long haul like Warren Buffett and others to let them appreciate in value and grow dividends over the lifetime of your portfolio.  Most investors subscribe to this theory for managing their investments. I prefer to more actively manage my portfolio and focus on multiple steams of income.

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You may have heard the old adage that the best way to make a small fortune is to invest a large fortune. Another one is that the most difficult time to invest is always now. Mark Twain famously considered every month of the year was peculiarly dangerous for investing in stocks. And there is the wall is a thoroughfare that begins in a graveyard and ends in a river.

Sometimes Wall Street analysts urge the public to buy stocks they know are poor investments as they are probably selling in private deals. Insiders can play games using their superior information because they hold insurmountable advantages. Even Jim Cramer has acknowledged how easily stocks are manipulated by big-time money managers.

To some, this theory is referred to as buy and hope.

As you learned from the past two decades, stocks don’t always go up. Remember the market downturn not so many years ago. Some people buy stocks at the end of a bull market after listening to the crowd full of bull market stories for years only to watch their stocks for years through a bear market. If you are in your 30’s this may not be a concern. But if you are approaching middle age or retirement, do you have time to wait out a secular bear market?

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The market went up an average of 8-9% in the last century but the key word here is this is an average. There have been periods of time when stocks turned in negative returns for several years. I know retirees who had their portfolio cut in half by market corrections. At that age, you no longer have the wherewithal to make earnings via working. A history lesson in it toke 20 years for the market to make gains after 1966. The latest bull market is being fueled by those prepping for retirement but eventually they will spend those dollars during retirement. You know what this means for the market.

Picking stocks that will last a lifetime to grow in value and appreciate in price is tough. We had debacles such as Enron and others and today bell weathers such as GE are in trouble. Yet to get rich in these stocks the security must perform well in all areas. Most of these stock picks are based on the fundamentals of the stock. However, there are many factors that affect long-term success such as changes in technology and markets. I am thinking of Amazon, Google, Facebook, Netflix and others. Where have all the books stores gone? Who was the major search engine before Google? Why are brick and mortar retailors going away because we shop on Amazon?

In general, buy and hold does not produce income. Stocks just lying around the portfolio doesn’t produce any cash flow unless they pay dividends. Growth stocks that are likely your home run stocks usually don’t pay dividends. If you asked a successful entrepreneur their opinion of tying up precious cash in a non-producing investment for years with the risk of a bear market, what will they say? They will probably tell you it is all about the cash flow. When income is not being produced, you are hoping stocks will increase enough over time to produce wealth.

The buy and hold investing ties up your capital without producing income to use in your life. If stocks are higher, then you can sell them, take gains and access the money. But if stocks are down, you are digging into your capital in order to get your hands on some cash. And it is all because stocks are not producing income.

Then there is the value investors. You know them, they buy low and sell high to capture the true value of the stock. Generally, the market moves all boats and your value investment will likely flow with the tide. Value is a relative term based on the perception of the assets as all do not agree on the correct value. Therefore, you had better be right if you are a value investor. Some stocks may be value plays for years!

Wall Street tends to be traders so they don’t do buy and hold investing but you are listening to their recommendations. Odd that Wall Street would tout a strategy they don’t follow themselves. There no mystery that Wall Street needs buyers for stocks. They turn their money generating cash flow all the time. Shouldn’t you?

Remember seeing two market crashes with one in 2000 and the next in 2007 with a span of 10 years. Some investors were ruined twice within a decade. With stocks at all-time highs, when will the next crash happen? Are you prepared to protect your capital?

The smartest strategy would be to buy stocks that pay dividends at the market bottom in 2009. You get the market rebound and cash flow from income. You may have picked up yields of 5% or more during this period.

Then, the best approach would be writing calls on your portfolio stocks to generate more income. A declining market is a perfect time to write calls on a long-term holding. The stocks are declining anyway so why not produce income out of them?

Instead of buy and hope investing, you should try income investing using a conservative approach that can produce an average monthly return of 3-5% which builds wealth quickly using dividend stocks. Think about it, you get dividends from the stock and premium income from writing covered calls.

Imagine that: you can force a stock to generate excellent income – paying you rent – while defining and limiting risk at the outset. And you can choose how much risk to undertake.

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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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New Income trade for 130% Annualized Return

Income Opportunity for 130% Option Trade
As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums.  This has been successful for our investors for years.  Option selling offers another method to diversify investing strategies beyond traditional dividend investing.  We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 130% annualized.
 
Stock:  Zumiez (ZUMZ) is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through the fashion, music, art and culture of action sports, streetwear, and other unique lifestyles. As of October 28, 2017 it operated 694 stores, including 604 in the United States, 51 in Canada, and 32 in Europe and 7 in Australia. ZUMZ operates under the names Zumiez, Blue Tomato and Fast Times.
ZUMZ announced that total net sales for the four-week period ended October 28, 2017 increased 10.0% to $61.5 million, compared to $55.9 million for the four-week period ended October 29, 2016. The Company’s comparable sales increased 6.6% for the four-week period compared to a comparable sales increase of 10.2% in the year ago period.
 
Earnings Per Share (EPS) was up 49% compared to the same quarter in the prior year. This tells us the company increased earnings and/or decreased the number of shares.
Return on Equity (ROE) is 8.01% for the latest twelve months. This reflects how efficient the company has been at turning a profit on the money shareholders have invested.
Chart: We have detected a “Symmetrical Continuation Triangle (Bullish)” chart pattern formed on ZUMZ. The stock’s price has broken upward to confirm a classic chart pattern, offering a target price for the intermediate-term in the range of 21.00 to 21.70 for a 19% price increase
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