Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘monthly income’

Covered Calls for Income Investing

Why don’t more people write covered calls? There are numerous reasons. The general population is unaware such an investment exists. Only a hand full of investing services promote them but popularity has increased as more brokers push option trading strategies these days. Also, they do require a level of education to learn them in depth. The popularity increase has moved covered calls by leaps and bounds as it should. This is moving investing to the next level which is income investing.

Many financial advisors, brokers, planners and others in the finance industry either are not comfortable with covered calls or simple don’t understand the opportunity for covered calls in their clients’ portfolios. Many advisors are fee based and accept sizable commissions from funds to recommend their products. They make extra money when you buy these paid recommendations in place of a strategy such as covered calls. Basically, covered calls are just not on their priority list.

The information disseminated about covered calls by advisors and websites who don’t know the theory behind covered calls tend to paint the strategy as being dangerous with little return for the risk taken. Then, these same advisors recommend you to hold low performing stocks or churn your account to increase commissions. If they used covered call writing on the buy and hold stocks it would generate income that will lower overall risk of the investment.

How can producing income from an asset increase the inherent risk of owning an asset? This argument against covered call is nonsense on the face. For example, a real estate developer is usually wiling to hold properties that generate positive cash flow. If they don’t cash flow, then you have a tax write off and a hope to sale at a higher valuation – sounds like buy and hold right!  Advisors recommend buying stock and funds based on commissions. If you are in the hammer business, everything looks like a nail.

Brokers fear liability when customers lose money, even on self-directed option trades and they make little on option trades.  The education of clients on options will increase the risk of them deflecting to discount option brokers online once they feel comfortable with covered calls.

You can’t blame the financial industry for doing what is in their best economic interest any more than in other industries such as plumbers, electricians and other trades. Just recognize your interest are different than the financial industry in terms of your long-term investing. Advisors make money when you do and they make money when you don’t. Your choice is to rely upon their advice or handle your own investing. What should you do?

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Here is a great quote from the greatest options expert Larry McMillan: “You will have to predict something in order to profit, for only market makers and arbitrageurs can construct totally risk-free trades that exceed the risk-free rate of return.”  Regardless of your style, stock picking or options trading, you must make choices and you must predict outcomes.

At Get Rich Investments, we believe covered calls do require a prediction but they lower the overall risk of investing. They produce premium income to offset some downside in stock price movement. If used with dividend stocks, they add another layer of income. Then, we couple a portion of our portfolio to monthly dividend stocks to lower portfolio volatility and risk while maximizing total portfolio income.

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How to Use Covered Calls in a Volatile Market

While the market has increased volatility due to the tariffs, inverted yield curve and continued political forces, investors need to find a safe place. Here, we look at covered calls to give us some downside protection while producing monthly income.

The Get Rich Investment website doesn’t conceptualize about making money – it’s about how to make money. Among income seekers, covered calls, though still not well known to the investing public, have become an increasingly popular strategy for conservatively generating an income stream from the stock market. A covered call is a stock option strategy in which we write (that is sell) call options against shares of stock we already own in our account or bought specifically for this purpose. A call option simply gives someone else the right to buy your stock at the fixed price for a specified period of time. The sale of call options creates a stream of income whether the stock’s price rises or not. The income is called premium from the sale of the call option.

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Even better, covered call writing is a conservative strategy that reduces the risks in a stock ownership. According to the Chicago Board Options Exchange (CBOE), the world’s largest option exchange, writing covered calls is more conservative than merely owning stock. Combined with protective put options, it is possible to construct profitable covered call trades in which the possibility of loss is severely reduced, or even eliminated entirely.

Done properly, covered call writing can produce a consistent income of 3% to 5% per month, with very few losing trades. That’s correct, a 3-5% monthly income from covered calls! And covered call writers don’t have to speculate or be able to time the market. Even new option investors can do it successfully.

Of course, covered call investing is a conservative strategy only if trade selection and management are conservative. Buying poorly run or underperforming stocks and running low probability trades will either reduce returns or turn some trades into losers. But there is no need to take any but small losses and those are rarely.

This is why Get Rich Investments exists – to teach investors how to create monthly income streams. The successful investors focuses on three pillars of covered call writing: trade selection, trade planning and trade management. We give you the trades to make money.

Mechanical approaches work well with some stocks but not others. Rigid rules can get you into loathsome trades or cause you to miss very profitable trades. They can lead you to great companies at lousy times. Worse, they over simplify what really is a dynamic endeavor. The best covered call system is to incorporate flexibility into the process to maximize success.

And this is the rub, focus on explaining the nuts and bolts of making consistent returns from writing covered call trades not a mechanically rigid system.

Knowing what to do and when to do it is the key to success.

Which stocks should you pick for covered call writing? Which month and strike should you write? Do things like support and resistance matter to success? Are there techniques to manage a trade in trouble and what are they? Can risk be strictly eliminated and eventually eliminated entirely?  This are the items delivered by our covered call service.

Success in investing comes from common sense, coupled with knowledge and experience to apply it. As stated above, done properly covered call writing can produce conservative returns of 3-5% a month. The “done properly” part is the key.

Think about this quote from Jim Cramer:

“If anything, buy and hold is a completely reckless and irresponsible strategy. This is why I have always preached ‘buy and homework.’ There’s nothing wrong with buying a stock with the intention of owning it for years, as long as you’re willing to check up on the stock every week to make sure that your thesis for owning it hasn’t fallen apart.”

For years, Wall Street has convinced the public to buy stocks for the long haul and hold them no matter what, through thick and thin in the expectation that stocks will appreciate in value. When right, and sometimes they are right, investors reap the benefits and create wealth. Warren Buffett is an excellent example of holding a stock forever. So at least goes the theory. This is the buy and hold school of investing. While it has worked for some investors over the decades, it has failed some. Luck may play a role in success or lack of it by being in the right stocks.

Then again, who can wait forever to create wealth! With our covered call strategy, you can start creating monthly income today. There is no waiting period as you get paid income at the time you sell the call option for premium.  The buy and hold 40 year plan doesn’t help the investors looking for income today.

If you are seeking income, learn how to write covered calls as a part of your portfolio strategy.

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Know the Rules of Investing

In a recent interview, Tony Robbins stated he has coached a successful trader for more than 20 years. The person he is talking about is Paul Tudor Jones, one of the most successful investors of all time and owner of the Boston Red Sox baseball team. Robbins found Jones, and other wealthy, successful people like him, were constantly looking to learn more about money. He stated:

It isn’t about the money! That’s why I call it ‘MONEY: Master the Game, his latest book.’ It is a game. A lot of people get offended by that, like ‘Oh my God! How could he call it a game?’ It is. “The wealthiest people in the world know it’s a game, and the reason they succeed is they know it’s a game. They know there’s certain rules. If you know the rules, you can win and if you don’t you’re gonna lose. Rather than be pissed about it, learn. “

I agree in being successful requires knowing the rules of the game. In my perspective, the rules are the trading plan – designing a strategy and knowing when to enter and exit a trade. At Get Rich Investments, we focus on producing income each month. To be consistent, e follow a set of rules we have learned from over 20 years of investing. The markets are always changing due to events, direction trends and volatility, This is why our income strategy incorporates several options to be successful. These strategies allow our members to be agile and to profit regardless of market sentiment and volatility.

Some investors are comfortable earning a 3-4% dividend yield to meet their income needs. If you seek more return, then join our income plan to earn 10-15% in income each year. We focus on world class stocks with nice dividend payments. But we juice our returns by collecting option income in addition to dividends. This strategy works with all sizes of account amounts- you don’t need a million to started. And, the sooner you get compounded your returns the more income you can create each month.

You can create 100s of monthly income checks using monthly dividend stocks.

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How to be a Multimillionaire

Grace Groner started her career as a secretary at Abbott Laboratories more than 80 years ago. Four years into her job, she purchased three shares of our company stock for just under $200. She held on to those three shares until she died, in 2010.

Those three shares alone made her a multimillionaire. She could thank the company dividend — and the miracle of compounding — for her $7 million fortune.

Grace wasn’t abnormally lucky. Any investor who bought $1,000 worth of high-dividend-paying stock 75 years ago would have about $3 million today.

Are you ready to start your million dollar journey? Get Rich using our income methods.

You can learn how to compound your money even faster than Grace. To do this, you need consistent returns to increase your dollars being compounded. Secondly, you need monthly income to accelerate the compounding effect. Lastly, you need an investment plan to achieve your goals.

Our monthly income subscribers are well on their way to financial independence. Here is the monthly returns from selling outs:

July:                 3.1%

August:            1.5%

October:          1.6%

November:      2.7%

These returns result in a 4 month return of 9.2% when compounded and near 30% when compounded annually!

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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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How To Manage A Covered Call Portfolio

We create multiple streams of income to achieve financial independence and early retirement. Learning how to get rich trading covered calls is what we do here.

The option income portfolio approach to selling covered call options seek to do the following:

  • To create options portfolios with the objective of earning consistent returns on investment throughout the stock market cycle;
  • To maximize options premium income, dividend income, capital gains potential and downside protection;
  • To increase long-term capital appreciation and income from stock ownership;
  • To minimize risk and provide diversification.

The option income portfolio is a continuous investment strategy.  Stock should be owned and options sold.  Dividend and option premiums can be earned and capital gains increased.  This is a key step in successful investing.

The more active you are, the greater you potential returns will be.  For example, when a sold call’s market value drops to 10-20% of the call premium received when initially sold – the investor should buy to close the call and then write a new call for more time value and/or at a different strike price.  This makes the covered call strategy more continuous and more profitable.

The experienced covered call investor will not panic when the stock price exceeds their call strike price.  They will buy to close the sold call for a loss and sell a new call at a higher strike price.  The loss will be covered by the additional call premium and the potential capital gain of the increased stock price.  The loss from the initial call buyback is a taxable loss for your income tax statement.  The loss is calculated by subtracting the cost of the buyback from the initial call premium received.  The investor should always keep a running log of these buyback transactions that result in a trading loss for income tax purposes. Like any losses over the allowable $3,000 in annual investing losses, they can be carried forward.

As an individual investor, you may not have time to manage a covered call portfolio like described above.  This is OK as you can still create a covered call portfolio for monthly income.  As you gain more investing experience, you can move in the direction of being more active in managing your covered call investing.

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Want To Create A Second Income?

Get Rich Investments, an online leader in helping individuals to create income producing investments, has a newsletter to guide investors seeking a second income.  This is one of the most valuable tools for investors to learn how to create monthly income from stocks and option strategies.

Does the idea of using an income investing strategy to create a second income every month on your funds appeal to you?  Get Rich Investments has created the Get Rich Monthly Income Plan to teach individuals how to create multiple streams of investing income.  This is a low-cost newsletter providing the following services:

    1. A list of “monthly dividend stocks” that pay dividends month after month. These investments can pay more than 10% annually (focus on several 15% yields) and can sometimes be purchased at a discount to net asset value.
    2. A list of covered call trades consisting of high quality stocks such as the S&P 5-star research rating of the best stocks that are recommended as strong buys. These lists are updated each week with select trades added daily.
    3. Low risk investments to minimize market risk and to prevent your portfolio from taking a big lost in such uncertain market environments like we are experiencing today.
    4. We have created a strategy called the Blanket Put that will protect your investment from market downturns. The Blanket Put is your safety blanket to protect your portfolio from market downturns. This is worth the membership fee by itself.
    5. Access to multiple education resources to better learn how to be a more successful investor. Trades don’t end when you make a stock buy, sell a call, or complete the trade. Here we want members to be educated about how to manage a trade and when to take action.

The Get Rich Monthly Income Plan diversifies risk by seeking multiple streams of income. You can create monthly income by: covered call trades, monthly dividend stocks and dividends from owning high quality, conservative stocks. That is multiple streams of income from this simple list as we focus on “cash flow” to the investor to improve your quality of life. This is a true passive side hustle for income.

We have more than 20 years experience in the markets including trading covered calls and monthly income investments.  In addition, we have Masters in Business Administration (MBA) from a top business school and other experience in corporate finance and strategy.  We have authored several books including the original Get Rich – Stay Rich: Investing for Monthly Income that is currently on sale at Amazon and other bookstores around the world. It is important to you that your monthly income is in qualified, experienced investor hands who can be trusted to deliver the best trades.

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Should You Sell Covered Calls in an Up Market?

So the stock market is up and at record highs, should you still sell covered calls?  The answer is yes because stocks don’t move up in a straight line as there are many up and downs along the long-term trend.  Here are six reasons why you may want to consider selling covered calls in a rising market:

1 — Momentum
Maybe a stock has risen more than the market recently and the momentum traders are doubling down. In doing so they usually increase the call premiums to where they’re just too juicy to not try a deep in the money buy-write. These can be highly volatile so it is probably wise to keep the durations short (i.e. sell the near month, and not four to six months out).

2 — Pending News
Before a big news announcement, for example, Apple (NASDAQ: AAPL), or any company before an earnings announcement) the option premiums tend to increase. Rather than buying into the hype, consider selling the hype by selling covered calls. The amount in- or out-of-the-money should scale with your opinion of which way the news will fall.

3 — Margin
When trading on margin you need to be extra careful. You can get hurt quickly if there is a sudden move against you. One way to increase your protection is by selling deep in-the- money calls. You may still lose money if there is a dramatic move down, but the call premium should buy you time to exit the position (if you need to) with fewer losses than you would have had if you had merely held the stock long.

4 — Taking some off the Table
Don’t be too greedy. After you’ve had a nice run in a stock it is prudent to either (1) sell a portion of the stock, or (2) write some calls against it so that if it gives back some of its recent gains you can capture some profit from the call premium. Often these can be combined by selling covered calls that are in-the-money on the portion of the stock you want to sell anyway. That way you eek out a bit more profit from the position. Or, if you’re still very bullish then try selling some near-term out-of-the-money covered calls.

5 — Partial Cover
If you can’t make up your mind whether you should cover the entire holding, then consider selling covered calls on part of your position. You’ll end up being half right and half wrong at the same time, but at least you won’t have been all wrong.

6 — Monthly Income
If you have core holdings that you plan to own for the long-term then why not write some out-of-the-money calls on them to generate some extra income (even if they’re rising in a bull market)? Depending how far out-of-the-money you choose, you may need to sell several months worth of time instead of near-month (to cover the transaction costs).

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Getting High Yields from Closed-End Funds

This is the second in the investing for monthly income series: how to get high yields from closed-end funds.

What is a closed-end funds (CEF) and how is it different from other investments? A closed-end fund is legally know as a ‘closed-end company.” It is one of three investment types of investment companies. The other two are mutual funds and unit investment trusts. Unlike mutual funds, closed-end funds sale a fixed number of shares at one time that trade on the major stock exchanges such as NYSE, NASDAQ, etc.

The price of CEFs are set by the market and can be above or below their net asset value. Generally, CEFs do not redeem shares from investors as the shares are bought and sold at market value on the exchanges.

CEFs come in many varieties with different objectives, strategies and payment time frames.  These funds can easily be purchased through any discount brokerage in both taxable and tax-deferred accounts.  The CEFs we are interested in pay monthly dividends and provide a high yield. When these funds trade at a discount (share price is lower than net asset value), their dividend yield is higher. This creates an opportunity for potential capital gains in addition to monthly income.

Upon receipt of monthly dividends, you can reinvest some or all into more shares of CEFs or other dividend investments. Reinvestment of dividends creates a compounding effect that will grow your income each month. There are rumors that former President Bill Clinton receives $84,000 per month in dividend income. This is a large supplement to the $16,750 Clinton receives from his government pension per month. This is one method that helps the rich get richer. However, you can accomplish the same objective by investing for monthly income.

Where can you find a list of CEFs? I personally use CEF Connect to track a list of CEFs in a portfolio. This is a free service (requires registration) with a search engine that will separate monthly payers from the flock. At last count, there was more than 400 CEFs that pay monthly dividends. There is a comprehensive list in Get Rich – Stay Rich.

The best time to buy CEFs is when they pull back in share price. The one caveat is to ensure their earnings per share is more than their dividend payout (this is available at CEF Connect under the distribution tab). If not, then you should sell and evaluate another CEF. The other item to watch is that the CEF pays distributions from ordinary income and does not pay from return of funds. Any return of capital means the CEF is giving back capital in the form of dividends which means the company did not earn their pay. Sell immediately if you see a return of capital.

The more you research CEFs, the more you come to like the total return and consistency of monthly paychecks. Keep in mind that financial independence is replacing your current income with passive income. CEFs are one investment to help get you closer to living a life within your comforts.

Here are two preferred stock CEFs for consideration:

The AllianzGI Convertible and Income Fund 5.62% (NCV) cumulative preferred stock is now trading in the $24.61 area to give it a current yield of 5.71%. This issue is rated AAA by Fitch. The issue had an excellent asset coverage ratio of 353% when it last reported.

AllianzGI Convertible and Income Fund II 5.50% coupon preferred (NCZ) is trading in the $24.04 area to offer a current yield of 5.73%. With a rating of AAA from Fitch, it a very safe issue. This CEF issue has an asset coverage ratio of 368% at last report.

Most of the CEF preferreds from Gabelli are now trading with current yields in the 5.2% to 5.3% range, indicating that the AllianzGI issues are relatively underpriced and present a good opportunity to purchase the safety of a AAA-rated preferred stock issue.

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