Stock Trading

[MrPiper]

Well, I think I've lost enough with CAVA and options to learn my lesson. I'm down 300 instead of being up 300, already out of the trade, and moved on. At least the loss was less than 10% and not all that painful if I don't re-purchase CAVA again.

Hi S&S. I get your concern with CAVA. I too am down a lot, but just a thought. How many times have I owned a stock that went well up and then came back down, or went down and came well back up. I buy companies that I believe in for the long run. CAVA is such for me but may not be for you. That's ok either way. I am "down" a few thousand $ on CAVA in UNREALIZED gains because I still own the stock. I have also made a few K on calls. All in all, I am down about 5%. I just continue to write the calls because I personally believe in the long run it will not only come back, but do so with a lot of growth. We will see.

The whole purpose of covered calls is to hold and make money. Sometimes you lose a little growth on a big upward swing. Sometimes you lose a little value on a downward swing as you see right now, but if you hold the stock on the downward, you continue to make money along the way. Unless the company goes under (which is rare but can happen) it will stabilize and you continue to make money all a long and eventually make your money back. If you wish to sell out as in this case w CAVA, you run the same risks with most stocks.

All this said, if you want lower high and low risk you will get less premium for you calls. BP is my personal go to for that. It moves like a giant turtle, pays a 5% dividend along the way, and yet has a lower premium but I keep it in the pile.

Thanks MP. Question: Do you continue to sell calls when the current stock price is lower than your purchase price? If so, do you always keep the strike price above your purchase price?

I sell calls ALL THE TIME when the price is lower than I paid for the stock. I just keep the call close to the CURRENT price where the better / higher premiums are. REMEMBER- this is the strategy for a tax advantaged account like an IRA where there is no tax consequence regardless of whether I make money or lose money.

If the stock is down I just keep on selling the calls close to the current price for the best premium and if it calls out, YES I "lost" a little money, but I have been making money on the calls on the way down and I am not at that big of a loss. Also, lets take CAVA. I have several 100 shares I paid about 47 for. I have been selling and selling calls. My current call expires this Friday with a strike price of 45 (already down a good bit from my purchase price) but I got 1.70 per share on the contracts! I have made almost as much in calls as I have lost in value as it has gone down. It WILL (in my studied opinion) eventually go up and I will have the call money I have been making and the principle comes back.

I will let you know what I do on next Monday the 18th. I will sell another call at very near the price on that day and see how much I make. IF that call gets called out, I will just buy the stock back and keep selling calls.

Again, on a stock you believe in and have done your homework on, you are expecting it to come back now or eventually and you keep selling on the way up, but when stocks are on the way up you MUCH MORE OFTEN get called out. Again, I just buy the stock back on the way up as well and sell the next call. The strategy here is to make money going down and make money going up. It's not as much about making money on the stock itself. This is why the CORE strategy is to find mega stocks (again I use BP) that have low volatility and stay in a fairly narrow range and sell calls time and time again.

In short, it is a consistent way to make money regardless of the direction of the stock, and in a tax deferred / IRA, you dont really care about anything related to tax consequences anyway. This is not for the stomach of everyone, but I like it because I find that in the long run, I make a lot more money doing this than trying to pick a winner and hope it takes off.

[sweetandsour]

Hi S&S. I get your concern with CAVA. I too am down a lot, but just a thought. How many times have I owned a stock that went well up and then came back down, or went down and came well back up. I buy companies that I believe in for the long run. CAVA is such for me but may not be for you. That's ok either way. I am "down" a few thousand $ on CAVA in UNREALIZED gains because I still own the stock. I have also made a few K on calls. All in all, I am down about 5%. I just continue to write the calls because I personally believe in the long run it will not only come back, but do so with a lot of growth. We will see.

The whole purpose of covered calls is to hold and make money. Sometimes you lose a little growth on a big upward swing. Sometimes you lose a little value on a downward swing as you see right now, but if you hold the stock on the downward, you continue to make money along the way. Unless the company goes under (which is rare but can happen) it will stabilize and you continue to make money all a long and eventually make your money back. If you wish to sell out as in this case w CAVA, you run the same risks with most stocks.

All this said, if you want lower high and low risk you will get less premium for you calls. BP is my personal go to for that. It moves like a giant turtle, pays a 5% dividend along the way, and yet has a lower premium but I keep it in the pile.

Thanks MP. Question: Do you continue to sell calls when the current stock price is lower than your purchase price? If so, do you always keep the strike price above your purchase price?

I sell calls ALL THE TIME when the price is lower than I paid for the stock. I just keep the call close to the CURRENT price where the better / higher premiums are. REMEMBER- this is the strategy for a tax advantaged account like an IRA where there is no tax consequence regardless of whether I make money or lose money.

If the stock is down I just keep on selling the calls close to the current price for the best premium and if it calls out, YES I "lost" a little money, but I have been making money on the calls on the way down and I am not at that big of a loss. Also, lets take CAVA. I have several 100 shares I paid about 47 for. I have been selling and selling calls. My current call expires this Friday with a strike price of 45 (already down a good bit from my purchase price) but I got 1.70 per share on the contracts! I have made almost as much in calls as I have lost in value as it has gone down. It WILL (in my studied opinion) eventually go up and I will have the call money I have been making and the principle comes back.

I will let you know what I do on next Monday the 18th. I will sell another call at very near the price on that day and see how much I make. IF that call gets called out, I will just buy the stock back and keep selling calls.

Again, on a stock you believe in and have done your homework on, you are expecting it to come back now or eventually and you keep selling on the way up, but when stocks are on the way up you MUCH MORE OFTEN get called out. Again, I just buy the stock back on the way up as well and sell the next call. The strategy here is to make money going down and make money going up. It's not as much about making money on the stock itself. This is why the CORE strategy is to find mega stocks (again I use BP) that have low volatility and stay in a fairly narrow range and sell calls time and time again.

In short, it is a consistent way to make money regardless of the direction of the stock, and in a tax deferred / IRA, you dont really care about anything related to tax consequences anyway. This is not for the stomach of everyone, but I like it because I find that in the long run, I make a lot more money doing this than trying to pick a winner and hope it takes off.

Ah, I get you. Thanks again.

[Del]

Ah, I get you. Thanks again.

We can adapt this strategy to an after-tax trading account. It involves a choice, when the stock is trading below our basis:

1) Accept less premium at higher strike, looking to avoid getting called out.
2) Go for the high premium and risk getting called out. In case of a call-out, discern whether we should wait 30 days to buy it back and avoid the wash-rule penalty. Probably buy something else.

If a guy has two stocks that he likes, he can alternate between them during a down market. Fortunately, volatility and premium are often quite high during a bear market.

In general, this is a buy-&-hold strategy. Pick a stock that we want to hold with long-term potential. Sell calls close to the money, looking to make guaranteed cash income on the premium. Enjoy some gains as it goes up, and hedge any losses as it goes down. Just keep buying it back as it goes up.
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If a guy has just $30,000 in his trading account, he can draw $500/month in premium while patiently growing his principal during a normal market.

My rule to thumb is to have twice as much principal as I need for my desired draw. If I have a stretch where my growth does not meet expectations, I can still draw my allowance.

I love the covered calls because they are a "set it and forget it" strategy. Just buy it back or buy something else when they get called out, and set it up again.

I am selling calls on my holdings (per Mr. Piper's strategy), looking for 20% return or much better over the year.

Then I use the buying power margin from my holdings to secure my iron condors. Credit spreads and condors require some baby-sitting, so that is my job now. It's a fun job. Looking just at my condor gains, I am up 66% this year after 37 weeks.
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My account is currently at $80k. I am drawing $1400 per month.

My goal is to reach $250,000 by Dec. 2025. Then I will start drawing $1000 per week cash allowance. That's $52,000 cash plus $35,000 to pay taxes = $87,000 per year for draw. Meanwhile, my growth/income will double that, about $200,000 per year.

My dream is to have extra cash to become a mid-roller philanthropist. Take my wife to Greece and visit Sid. Maybe buy a modersackle.

[Del]

I am really starting to see the wisdom in Mr. Piper's call strategy.

Normal savers like to buy an S&P 500 Index Fund. They expect annual returns ranging from -10% to +20%, with an overall average of +11% in capital growth.

Mr. Piper holds a blend of stocks and sells calls that are close-to-the money, receiving roughly 1% return every two weeks. Over a year, this is guaranteed 20% return in cash premiums. This strategy gives up some capital gains, so in a normal year he likely scores 5% to 8% in capital growth. Together, he is growing at 25% or better, more than twice the expected 11% of a passive investor.

Passive investor model account balance doubles every 7 years.
Mr. Piper model account doubles every 3 years.

At 1% premium on the covered call, a stock with implied volatility of .2 to .3 will get called out in about one trade out of three. So we buy it back and sell another call.

Original basis doesn't matter in a tax-deferred account.
In a taxable account, if we sell below our original basis then we have to mind the wash rule. Should buy something else and mind the 30 days.
====================================================

Mr. Piper model makes stock picking easier. We don't need to chase hot stocks with potential for explosive growth (and expensive busts).

We are making our money on option premium, so capital growth is not as important as it used to be.

We look for stocks that have a steady growth outlook. It doesn't have to be great.
Also -- we favor stocks with HIGH IMPLIED VOLATILITY. These stocks pay more in premium -- or give us more capital growth headspace for the same 1% premium.

This weekend, I will review some of the stocks that I have picked.

[sweetandsour]

I am really starting to see the wisdom in Mr. Piper's call strategy.

Normal savers like to buy an S&P 500 Index Fund. They expect annual returns ranging from -10% to +20%, with an overall average of +11% in capital growth.

Mr. Piper holds a blend of stocks and sells calls that are close-to-the money, receiving roughly 1% return every two weeks. Over a year, this is guaranteed 20% return in cash premiums. This strategy gives up some capital gains, so in a normal year he likely scores 5% to 8% in capital growth. Together, he is growing at 25% or better, more than twice the expected 11% of a passive investor.

Passive investor model account balance doubles every 7 years.
Mr. Piper model account doubles every 3 years.

At 1% premium on the covered call, a stock with implied volatility of .2 to .3 will get called out in about one trade out of three. So we buy it back and sell another call.

Original basis doesn't matter in a tax-deferred account.
In a taxable account, if we sell below our original basis then we have to mind the wash rule. Should buy something else and mind the 30 days.
====================================================

Mr. Piper model makes stock picking easier. We don't need to chase hot stocks with potential for explosive growth (and expensive busts).

We are making our money on option premium, so capital growth is not as important as it used to be.

We look for stocks that have a steady growth outlook. It doesn't have to be great.
Also -- we favor stocks with HIGH IMPLIED VOLATILITY. These stocks pay more in premium -- or give us more capital growth headspace for the same 1% premium.

This weekend, I will review some of the stocks that I have picked.

TGT tanked today. CAVA too.

[Del]

TGT tanked today. CAVA too.

And NVO. Pretty much all of my high-volatility picks.

I don't know what's up with that. It seems like a delayed reaction to the big drop in SPX on Friday.

I'm not too concerned. September always sucks, so some drops in the stocks and indexes do not trouble me.

I sold a whole new round of two-week calls this morning. I took less premium for NVO, in favor of gain as it recovers to normal. Also because there wasn't a lot of open interest in the strike that I want, but plenty of interest in the next higher strike. As a result, I am putting more trust in the market and less weight on the sure and safer thing, which is the option premium. Most likely, I made the wrong choice.... but I will watch and learn.

This news report purports to explain today's drop:
Novo Nordisk shares fall after media report about quality lapses at U.S. plant

I am warming quickly to Mr. Piper's method. Now I don't care now if my retirement stocks meander flatly for the next decade as we recover from Biden's stagflation. I can reliably generate over $6000 per month in call premiums alone. It feels good to be free of worrying about whether or not the index is up by 10% every year.

[sweetandsour]

We're (my wife and I) close to changing financial advisors, after 15 years with the same guy. He doesn't do covered calls, and the fees are too high, and I think he's made enough money off of my IRA already.
He still says that there will very likely be a recession this year or at least by next year mid-year, while others are now changing out of defensive positions.
I don't know, still. I'm typically a loyal type guy, but I feel like I've turned a page. My wife has for sure.

Anyway, I was away from the market all week last week while on a job, and I have an all day meeting today, so my play account is still all in cash.

[Del]

We're (my wife and I) close to changing financial advisors, after 15 years with the same guy. He doesn't do covered calls, and the fees are too high, and I think he's made enough money off of my IRA already.
He still says that there will very likely be a recession this year or at least by next year mid-year, while others are now changing out of defensive positions.
I don't know, still. I'm typically a loyal type guy, but I feel like I've turned a page. My wife has for sure.

Anyway, I was away from the market all week last week while on a job, and I have an all day meeting today, so my play account is still all in cash.

In his defense, no fiduciary advisor guy is going to trade options for clients. Most never bother to learn it, even for themselves.

It's just too risky -- for them. It takes too much time to mind the trades of so many clients, and too easy to drop the ball and lose somebody's money. Then lose reputation, license, and lawsuits. They exist to serve the highly risk-averse, anyway.
=======================

I just signed on with a financial advisor guy. I had vetted several and pretty much gave up on finding a good one, but I still need advice on transitioning into retirement -- tax compliance, Social Security, Medicare, inheritances, estate planning, and other minefields that I don't even know about.

And then I stumbled upon a great young man! A solid Catholic guy who specializes in working with solid Christian clients! Big heart for helping small-wealth families with young kids and little experience in saving. Big heart for wealthy clients who want to share with lots of kids and grandkids, college savings, and generous charitable giving. He has some sort of special certification for managing charitable giving.

He won't make much money from small-wealth clients for years until their wealth grows. And he makes less money from large clients when they give their wealth away. But those clients are loyal! He makes enough to support his own large family, and he loves his work. He views his work as a sort of ministry.
=======================

For my part, I'm not worried about recession (more likely than not) or stagflation (we're in it, but not too bad yet). I can make retirement income from my options trading account and covered calls in my IRA, even if the market drops 20%.

But most people are not in my position. My heart breaks for all the young families and retirees with minimal savings. We need to fire Biden and get some capable leadership before the ship sinks.

[Del]

My financial guy was a bit disappointed when I told him that I didn't want to give him my IRA, as I want to sell calls on it.

He got my wife's IRA and 401k. I promised that if he can out-perform me after a year or so, I'll give him my money too.

Meanwhile, I have some rental properties that aren't returning much in cash flow. I'd like to sell those, but I don't need the cash and I don't want to pay the taxes. We're looking into moving those assets into a charitable trust that he can manage.

[sweetandsour]

We're (my wife and I) close to changing financial advisors, after 15 years with the same guy. He doesn't do covered calls, and the fees are too high, and I think he's made enough money off of my IRA already.
He still says that there will very likely be a recession this year or at least by next year mid-year, while others are now changing out of defensive positions.
I don't know, still. I'm typically a loyal type guy, but I feel like I've turned a page. My wife has for sure.

Anyway, I was away from the market all week last week while on a job, and I have an all day meeting today, so my play account is still all in cash.

In his defense, no fiduciary advisor guy is going to trade options for clients. Most never bother to learn it, even for themselves.

It's just too risky -- for them. It takes too much time to mind the trades of so many clients, and too easy to drop the ball and lose somebody's money. Then lose reputation, license, and lawsuits. They exist to serve the highly risk-averse, anyway.
=======================

I just signed on with a financial advisor guy. I had vetted several and pretty much gave up on finding a good one, but I still need advice on transitioning into retirement -- tax compliance, Social Security, Medicare, inheritances, estate planning, and other minefields that I don't even know about.

And then I stumbled upon a great young man! A solid Catholic guy who specializes in working with solid Christian clients! Big heart for helping small-wealth families with young kids and little experience in saving. Big heart for wealthy clients who want to share with lots of kids and grandkids, college savings, and generous charitable giving. He has some sort of special certification for managing charitable giving.

He won't make much money from small-wealth clients for years until their wealth grows. And he makes less money from large clients when they give their wealth away. But those clients are loyal! He makes enough to support his own large family, and he loves his work. He views his work as a sort of ministry.
=======================

For my part, I'm not worried about recession (more likely than not) or stagflation (we're in it, but not too bad yet). I can make retirement income from my options trading account and covered calls in my IRA, even if the market drops 20%.

But most people are not in my position. My heart breaks for all the young families and retirees with minimal savings. We need to fire Biden and get some capable leadership before the ship sinks.

I've spoken with 2 FAs that will occasionally sell covered calls for income, under certain circumstances that were a bit too far over my head for me to reliably repeat. Our current guy simply does not; but he has gravitated more to high-fee mutual funds, and he raised his own management fee. It's his management fee that bugs me more than the hidden fund fees, and I think he knows that it bugs me, but I'm small potatoes compared to the many large clients that I know he has. The larger account, the lower the fee.
Anyway, it's time to move on, long-story-short, although it's uncharacteristic of me to change when I've been with one group for 15 years. Same thing with auto and other insurance. We moved on from a long time agent earlier this year. The old group, like our FA, wouldn't give, and continued to have the highest rates, and seemed to take everything for granted and just didn't care.