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Trade exit – Micron Technology Inc. (MU) – covered call expiration with 13.18% gain

Trade exit - Micron Technology Inc. (MU) - covered call expiration with 13.18% gain

Micron Technology was one of my best performing stocks during the entire covered call options trade. I bought the stock in late March 2013 and opened a total return covered call against the position. You can see my covered call initial opening record on the “New trade – Micron Technology Inc (MU) covered call” page. Under the post you may notice that this trade sparked a lot of controversy among my readers. But I had a plan and clearly outlined what I would do in all possible trade outcomes.

It is one of the most important things every investor must have before placing an order – a plan what to do in every situation of the entire trade. Even a dividend investor must have a plan. It will be a bit simpler than if you are trading, but it still has to be a solid plan.

With covered calls you need to know what outcomes the trade can bring and have a plan how you would react. My outcomes were that

  1. the stock ends up above the strike price
  2. the stock ends up below the strike price
  3. the stock drops significantly below strike price

The question would be what would you do in those situation?

With Micron technology the first case happened and my covered call will execute and my 100 shares of MU will be called away from me. In other words I will be forced to sell the shares.

This was my plan for the first outcome. I want this stock to be called away. I wasn’t planning on holding Micron Technology for long term or as a long term investment. It is not a core of my portfolio.

This kind of trade in covered calls is called a total return.

The other covered call strategy is called a partial return. This strategy is used against the core investments of your portfolio. You are selling covered calls against stocks you already own in your portfolio to generate income. In my case I would be selling covered calls against my dividend growth stocks. And that is what I do not want to do. I do not want those stocks to be called away from me.

Back to Micron Technology. The chart below shows the entire trade.

Micron Technology options trading

You can see how greatly this stock performed. One would say I should have kept this stock as an investment instead of trading a covered call against it. The stock provided me with 46% return and thanks to my covered call trade I will only get 13.18% return. Selling now I will give up 32% of my return!

Well, as I was mentioning above having a plan, this wasn’t my plan. I wasn’t planning on holding this stock as an investment. I wanted my 13.18% (or 44.86% annualized return) and $114.22 cash this trade delivered. I do not want more from this stock at this moment. I will collect my money and move on to another trade.




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Things to Consider Before Buying Insurance

Things to Consider Before Buying Insurance

What is the first thing which comes to your mind when we talk about insurance? Isn’t it a security and returns? These benefits can be achieved only if you identify that what type of insurance policy is most suitable for you. The leading insurance companies in the market try very hard to offer top quality services to their customers. The rivalry among insurance companies actually helped customers to avail maximum insurance benefits in lower prices. However, it is extremely crucial from customer’s point of view that funds should be invested only after verifying all the financial aspects properly. Here is a list of some important things you must consider before taking a crucial decision of purchasing insurance –

Identify your own needs

The first and foremost thing is to identify your own insurance requirement. It is extremely essential to understand the type of insurance cover you are looking for. You also have to consider minimum insurance cover requirement which is specified by your state law. You can avail all these details on sites of different insurance aggregator. If you are looking for health insurance then opt for an insurance provider who will modify insurance policy according to your own needs such as hospital bills, third party coverage and pre-existing illnesses.

Background Check

It is necessary that you gather all the necessary details about performance of your insurance provider. You can take help of online forums to get proper feedback on financial standing and service pattern of your insurance company. You can also get in touch with the existing customers of the insurance company who will provide genuine feedback regarding product, services and customer support provided by the company.

Shop Around

Don’t purchase insurance policy from the first company you come across. It is recommended to shop for quotes with various companies available in the market. You can compare quotes along with features offered by each company before short listing any one out of those. Most of the online shopping destinations offer comparison between features and prices of multiple insurance companies at single platform. So you can take help of these online portals to do thorough analysis.

Assess your Risk

If you are enrolling for business insurance then insurance companies analyze the level of risk attached to your business. The level of risk depends on many factors such as format of your business, fire protection services installed, business location and amount of insurance coverage you are looking for. If there is extremely high risk involved in your business then insurance company may skip some of the benefits requested by you in the insurance policy. The higher your business risk, the more premium you have to pay for insurance coverage.

Purchase insurance policy online

If you are worried about the tedious process of buying insurance policy then opt for online mode of purchase. You can save significant amount of money and time if you purchase insurance policy online. You can access websites of insurance company at any time to compare different plans and policy premium to take an informed decision. One more advantage of online insurance purchase is that you can check your fund value and access your account statement regularly during your insurance tenure.

Read the fine print of policy

It is frequently observed fact that most of the customers ignore reading fine print of their policy. It is necessary that you should read all the terms and conditions carefully. Most of the disclaimers are covered under this fine print which you should never miss reading. It is also important to understand insurance terminologies mentioned in your insurance policy. If you are doubtful on any details in your policy then you can get in touch with your insurance advisor to clarify the things.

Apply at right time

If you are opting for health insurance then apply for it when you are healthy. Most of the health insurance policies such as disability insurance ask you to go through medical underwriting. Your insurance company may review your medical records before allocating you sufficient amount of insurance coverage. If you are suffered from any pre-existing illnesses then you may have to bear higher premium charges in order to cover those ailments in your insurance policy.

Don’t choose policy on price alone

One important thing you must aware of is that the price of your insurance policy mainly depends upon the benefits and features attached with it.  If you are business owner then you can consider enrolling for group coverage for your entire staff with a plan which doesn’t demand medical history.

Honesty is a best policy

When you are asked to provide all your personal, financial and medical details then don’t hesitate to submit genuine information. Holding back any important details may result in non-payment or delay of claims to your nominees in later stages. Providing right details at right time to your insurance company will definitely help you to avail customized insurance plan that will provide features according to your own needs.

Add insurance Riders

If you are applying for health insurance policy then you can consider adding insurance riders along with your existing policy to avail comprehensive cover. These riders mainly include critical illness, premium waivers and accidental benefits. Tax benefit is one more remarkable feature which an insurance holder can avail along with these riders. But always remember the key objective of insurance is to protect your loved ones and tax saving is only a supplementary thing.

Manage your policy

Once you have completed reading fine print of your insurance policy, you can keep it along with your other important financial documents. But don’t store it in a safe deposit box. This is because after death of policyholder, boxes are sealed by bank for temporary period of time. This could delay your nominee’s access to the insurance benefits. Reviewing your policy is one thing you have to consider from time to time, especially when any major life events happened in your life.

Opt for Life Annuity Cover

If you want to make life term provision for your loved ones after your death then life annuity is an ideal choice you must opt for. Life annuity allows the insurance benefits to be transferred to the nominees as long as they are alive. Though life annuity provide low amount of payment every month, but it offers a source of steady income to those who wish to complement their income when they get old.

Conclusion

Most of the people are able to avail insurance from their employer sponsored group plans and in many cases, this is an ideal route. However, not all insurance plans provided by your employer are comprehensive and you may need to enroll for supplementary insurance plan to make sure that you and your entire family are adequately covered.

The bottom line is that insurance plans play vital role in protecting you and your family members from any devastating future expenses. The simple things mentioned above will not only help you to purchase an apt insurance policy but it will also play vital role in managing your finances for long term.

 




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Posted by Martin July 17, 2013
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Who owes you?


LibertyI am not going to talk about money someone may owe you, but about surprisingly rising common believes among Americans when we talk about success, opportunities, liberty, and pursuit of happiness.

Usually, in socialistic countries, in central economies, people tend to rely on their governments that they would take care of them. If you traveled to the post-communist eastern European countries, you could hear a statement from older people (I no longer have an experience about today’s young generation) that it was a government fault (no matter what the issue was) that they failed in their lives.

It is no wonder. People lived under a strict rule of everything being managed by the government. The government took care of pre-schools, elementary schools, high schools, colleges, market, regulated prices of everything, housing, your job and your vacation. Without government’s blessing you couldn’t travel, get a job of your dream, study a school of your choice, and pursue your happiness. If something went wrong, it was the government’s fault. But on top of that, you couldn’t say it out laud or you would end up in a concentration camp.

Today, the situation isn’t much different and people still think that it must be the government who must, by its nature, be responsible for their lives. They were raised up in such believes and ideology. They did not know that it could be different that there were other ways to live happy.

It makes me more surprised hearing similar claims from Americans themselves who were blessed enough to be born in a country which was established on democratic principles (although at that time not perfect and fragile) and the Constitution and those principles protect everyone’s rights, liberty, happiness and opportunities.

Every American has his own chance and opportunity to go and pursue his dream, if he or she has one. The beauty of this country is that you have that chance and if you go for your dream, in most cases you will reach it. There will not be any local government or federal government waiting for your money collected via thousands of different fees (and bribes), local business mafia (called lobby) which wouldn’t allow you to get into the business (one would say they dug the economic moat on their own state subsidized business) unless you accept and play their game, using clientelism, protectionism, and corruption. Just try it on your own in any other country and we can share our experiences.

What I have read on the internet this morning was a claim of a commenter that her government owes her her rights:

Annette
Most of the non wealthy that I know don’t possess a victim mentality either.
Although they do believe that they have a right to life, liberty and the pursuit of happiness.
I do believe that I am owed the chance by my government to attain such.
I might make $100k less than the “wealthy” but I find great happiness in life.
I might have been verbally abused as a child, molested etc., but I find happiness today & push out the memories of yesterday.
Sure, bad things happen in live, but I don’t believe that the “masses” have “victim mentality” in excess. There will always be some – but I’ve learned that they seem to be happy in their misery.

Emphasis added by me. Most of the time in the past I met many Americans who understood their country and appreciated the blessings it provides. These days, I am meeting more Americans whining about their life and their country. Where is the patriotism and proud to be American I always admired left? What happened to it?

I understand that economical situation is hard and a lot of people struggle, but that doesn’t mean that it is government’s fault that you struggle. Although I agree that it was the government and their improper intervenes into economy which got us into the economical mess we are experiencing, it also is not a reason to blame the government for our miserable life unless we tried the first and the last of what we could do to change it.

If we allow this to happen to us and start blaming everybody around us, as is typical in the post-communist countries, we will soon slip into a personal lethargy, apathy and unwillingness to do something for ourselves. We will become dependent to our breeders (in this case the government) and unable to take care of our own destiny.

The government owes you nothing and you do not owe the government anything either. Thinking that the government owes you something and is responsible for your life is a first step to everyone’s misery. You will never step out of that vicious circle of blaming the government, the weather, parents, bad roads, bad schools, bad neighborhood, bad health care, bad housing, bad (manipulated) market, bad (manipulated) stocks, and bad this and that. That’s not the way out. This country provides you with opportunities. Just spot them and grab them.

Believe me. I am an immigrant who came many years ago with nothing in his pocket. It was not “waiting for the government”, but hard work and seizing all opportunities provided to me, which made me rich (not by millions in a bank, but my life, work, family and house over our head). It is not a government, but you who can take care of you and make you rich, free, and happy.




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The Biggest Mistakes Investors Make When Buying Stocks

The Biggest Mistakes Investors Make When Buying Stocks

The following is a guest post from Ben Carlson at A Wealth of Common Sense. Ben writes about personal finance, investments, investor psychology and building wealth using your common sense.

   

“There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.” – Charlie Munger

Most investors focus on how to choose winning investments by making the correct moves all the time. You should actually be happy if you are right just a little more often than you are wrong. One way to increase your odds of success is to instead focus on your mistakes. Admitting your mistakes and working on minimizing unforced errors will help.

Here are some of the biggest mistakes stock investors make when investing in stocks.

Buying Based on a Story Instead of Fundamentals

Investors love to buy a stock that has a great story. It’s sexy to talk with your friends and colleagues about innovative products, growth and revolutionary CEOs. These attributes get us excited about certain stocks.

Losing moneyJust don’t confuse excitement with value. It’s great if you find a stock that has a story, but make sure it has the fundamentals to back it up. In most cases the story has been baked into the price long before you came along to invest in the company. Remember that great companies don’t always make for great stocks if you buy at the wrong price and terrible companies might make for a great investment at the right price.

You should make your purchase on the basis of the fundamentals of the business using a wide variety of valuation methodologies (P/E, P/B, P/S, BV, FCF yield, DCF, dividends or whatever you determine to be important). Also, make sure to buy with a margin of safety in case your analysis proves faulty. As with all financial models – garbage in, garbage out.

Not Defining Your Time Horizon

I feel that the biggest edge that individual investors have over Wall Street is the fact that we don’t have to worry about short-term performance or benchmarks. Wall Street must play in the week to week and quarter to quarter time frame. They must produce results or have their investors look elsewhere. This can lead to big time career risk if they continue to underperform, which causes them to focus on short-term performance.

Individual investors have the luxury or being able to think and act long-term with their stocks. We don’t have to beat the S&P 500 every quarter or calendar year. We have the ability to be patient. Just make sure you know what your time horizon is before you buy a stock so you don’t make unnecessary moves at the wrong time.

Not Having an Exit Strategy

Buying stocks can be difficult, but the majority of the time, stocks are rising. Therefore even though there are a wide range of factors that you must consider before making a purchase, it’s not the hardest part of the stock investing equation.

It’s actually much harder to determine when to sell a security. We’ve all heard war stories from investors that sold too quickly or didn’t sell soon enough.

The sell decision also has to do with your time horizon as an investor. Are you a long-term holder? A short-term trader? An opportunistic investor in periods of volatility?

You must determine whether you will leg into a position over time, buy the dips in price, invest all at once to buy-and-hold or trade around your positions by taking occasional profits. Knowing this ahead of time will give you a better idea about how to handle your sell rules.

Most successful sell rules involve basing them on a rules-based approach. This could be a valuation target such as the P/E multiple over a predetermined long-term average. Another option would be to sell when the dividend growth rate falls or the dividend gets cut. There are tons of data points to choose from. Just make sure the fundamentals you use for your buy decision are the same ones you use for your sell decision.

Not Having a Reaction Plan

Most investors assume that their actions are the most important aspect of their investment plan. Actions are important, but it’s actually your reactions that make the biggest difference in the long-term.

You need to have a process in place that helps you determine what to do in periods of volatility on both the upside and the downside.

What would you do if the stock you just purchased rose 50% in a month? Would you take some gains? Sell the entire position? Continue to hold for the long-term?

What if it dropped 50% in a month? Would you buy more? Get rid of it entirely? Hold tight?Hold tight

Having a plan in place before you make a purchase can help temper your reactions. It won’t always turn out to be the best move and it could be different for each investment, but having a consistent process will take away some of the guess work when markets get crazy.

Summary

Everyone makes mistakes when they invest. It’s the nature of the beast when you are dealing with complex markets full of people and institutions that all have different goals and objectives.

Minimizing the big ones will give you a higher probability for sustained success in the long-run. Sticking to the fundamentals, having a long-term time horizon, developing an exit strategy and creating a process to deal with how you react to uncertainty can help you avoid the mistakes that most investors make time after time.




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Posted by Martin July 14, 2013
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My inspiration in the last week #28

My inspiration in the last week #28

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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Best Tips for Financial Planning

Best Tips for Financial Planning

Financial planning is something every individual has to do in his life but most of us postpone it for the future. This is because financial planning requires consistency and discipline, which is so hard to practice in existing era of consumerism. Money plays extremely important role in everyone’s life but when you have it, you hardly give it an attention it rightly deserves. Most of the people look forward to earn extra money instead of giving thought on managing funds which they already have. Here are some useful tips which will help you to realize importance of financial planning and they will surely encourage you to make financial planning as your major goal in life.

Spend lower than what you earn

If you spend everything what you earn, you will never become rich, no matter how much money you have been making. The wide is the gap between your spending and earnings, the faster you accumulate your wealth. Spending lesser than how much you make is one of the best ways to achieve financial security. It is quiet easy to control your spending than increasing your earning. It doesn’t demand much sacrifices from your side and find-tuning of your expenditures may result in substantial savings in long term.

Start early

Make proper planning and start early on your endeavor of achieving financial goals. Compounding interest is highly powerful money building tool which can turn your minimal amount of money into bigger ones, provided you give enough time for your investment to grow. It is common behavior among investors to put things off, but earlier you embark on moving toward your financial goals, the closer they will appear.

Keep savings on your priority

Before you pay for your grocery bills or any other expenditure, you must keep aside bulk part of your regular income. Don’t forget the famous saying, ‘Pay Yourself First’. You can start with smaller amount and then increase your savings gradually, while fulfilling your financial liabilities. The important thing to consider here is that only savings are not sufficient unless those are channelized into highly productive and safe investments.

Get rid of your credit card debts

Credit card expenses are something you have to be extra careful with. Those small pieces of plastic are extremely convenient to use and its common thing to forget that it is real money you are dealing with when you swipe them to make any purchases. There are high chances that you will face credit problems if you fail to realize when and how to use your credit.

Review your all borrowings properly

In present market scenario when return on investment is extremely low, it definitely makes more sense to take proper control on your expensive debts. If you have credit card liabilities or loan repayments to make then get rid of all your borrowings before investing your surplus amount anywhere. Once you take care of your existing borrowings, you will get a clearer picture on how much funds you afford to invest for your secure future.

Diversify your portfolio

Always make sure that your investment and risks are well diversified to protect you from any market fluctuations. This is also the stage where you have to seek advice from any professional expert. Your financial advisor will analyze your financial status and future priories to figure out an investment plan which will match your financial needs. The younger you are, the higher risk you can take as you get enough time to cover your losses.

Regularly Review your financial plan

Your financial conditions and future priorities keep changing according to time. So make sure that you review your financial plan regularly to confirm that it is rightly balanced and will meet your financial needs.  Procrastination may result in risky investment strategies that may leave you vulnerable to fluctuations in market which will diminish your long term savings.  In case you are married, then analyze how much savings you can make on your spouse’s income. Identify whether any expenses can be shared among both, so that you can contribute more towards your savings.

Know where your money goes

Budgeting is one of the important financial aspects which most of the investors struggle to deal with. You will not able to save anything unless you know where your money is exactly going and you are in right position to manage your expenditure. You must keep proper track of money that comes in and goes out of your pocket. In initial time, it may be bit difficult but you can take help of different financial tools available in the market to manage your financial budget. Keeping track on your expenses will help you to avoid unnecessary purchases so that you can save significant amount of money over long term.

Know about your Social Security Benefits

Government plays vital role to supplement your retirement income but don’t rely on it completely to meet your retirement needs. Though SSA can cover your 40% of pre-retirement income, but when you get retire the amount might be lower than what you have expected. So along with government benefits try to do your own retirement planning and start saving as early as possible.

Keep adopting new financial strategies

Financial planning is long term thing which has to get attention it deserves. So always keep your mind busy and keep adopting new investment strategies. Conduct proper risk – return analysis and opt for investment avenues which can give you optimum returns within minimum risk. If you think that the return on investment is high on a particular product then you can always take calculated risk.

Insure your family

Many people assume that they are rightly covered under their insurance plan but they put themselves in catastrophic situation when they realize that they are not adequately covered. It is extremely essential for every individual to do his insurance-needs analysis at right age. The earlier he enrolls for insurance policy, the lesser premium he has to pay. An Umbrella insurance policy which offers you home and car insurance is definitely a good idea, if valuation of your asses is over $1 million.

Make and update your will

More than 60% of US citizens don’t have a will. In case, you have dependents then you definitely need a will, no matter how much property and wealth you are. If your financial situation is extremely complicated then you can seek advice from a financial expert or solicitor to update your will.

Conclusion

Figure out how you are currently doing in above mentioned financial aspects. If you are doing well only in half of the aspects then review your financial situation immediately to make necessary improvements. Choose one aspect at a time and set a strategy to incorporate all above mentioned things in your financial plan.

Taking resolution to enhance your financial situation is a nice thing to do during any time of year. Most of the people begin with it when they get job, while others start it when they get married. No matter when you start, the basics always remain the same. The most important thing is to take an action and the earlier you do so, the higher benefits you can achieve.




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Posted by Martin July 08, 2013
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Do you want dividend investing and do not know how to start?

Do you want dividend investing and do not know how to start?

Are you invested in mutual funds in your ROTH or traditional IRA account? Are you sick of seeing their mediocre performance? Have you been recently thinking about picking up and investing into individual stocks?

If you responded to those questions YES, but have no clue what to do and where to start, read on.

If you are inexperienced in investing into individual stocks you need to start by answering a simple question:

“What do you want from your investments?”

Find your strategy first

You need to define your investing strategy first and a goal you want to reach. And here I do not speak about a goal for which you are saving and investing but the goal of how your portfolio and adopted strategy should look like once you are fully invested.

Once you set up an investing goal, you will enter into an accumulation phase of investing. At this point, your goal and strategy should be set, otherwise you will fail.

Believe me, I’ve been there, so I am speaking from my own experience.

To demonstrate what I am talking about, I am going to show you my own selection process. Originally, I believed that I could make money and get rich trading stocks. So I wanted to trade. And I selected and studied a swing trading strategy.

As I was losing money and slowly realizing that the swing trading is not my nature of investing (it didn’t fit my investor’s profile) my next thinking was how to make more cash to be able to to use it for more trading. How to make my portfolio to produce a cash flow.

Cash flow!

The magic word was out.

Cash in hand is king

“Will I be able to generate enough cash flow trading stocks?” was my next question. Well, my past performance proved that I wouldn’t be able to do that.

Then, a dividend growth investing strategy popped up to me and I instantly knew that this was it.

With dividend strategy you do not care that much about underlying stock as long as the company pays dividends.

OK, you are thinking that you won’t be experimenting with trading or other strategies. You want income which you can be reinvesting for next 20 years and then enjoy a reliable, untouched, and ever coming stream of income.

But what’s next?

How to start?

35 Dividend Growth StocksIf you want to know where to go next, which stocks to start with, I would recommend you an e-book by a fellow blogger Dan Mac 35 Top Dividend Growth Stocks. The book, he wrote, is available for Kindle edition and it is an inexpensive review of the strategy and metrics he uses when evaluating dividend stock candidates. It follows an old investing adage: “Keep it simple stupid”. The metrics he lists are basically the same or similar to those all dividend growth stock investors use.

The second part of the book shows great candidates to start with. If you invest to some of those stocks, you won’t make a mistake.

I am not affiliated with Dan and I am recommending his book because I remember my own struggle when I started investing and thinking “what stocks I should buy first?

I am a lazy person and I still like to choose my stocks by reviewing of what stocks others invest in and what they have to say about those companies. Then I want to keep it simple. I take stock selections others mentioned in their reviews and add them into my watch list for further studying or review. A great source of stocks and analysis can be found on another great blog Dividend Growth Stocks provided by a dividend investor and blogger Dividends4life. You can also check other bloggers from my blogroll who periodically write up their stock analysis, such as Dividend Monk, Dividend Engineering, or Dan’s blog Dividend Growth Stock Investing. On those web sites you will find tons of dividend growth stocks to start building your watch list. And of course, you can use my own dividend stocks watch list too.

The stories about each of the 35 Top Dividend Growth Stocks in the second part of Dan’s book along with his listed metrics will give you a great starting insight into your first stocks. With this book you will no longer ask the question “How to start investing?”

I have my watch list, what’s next?

Once you create your watch list, the process is easy. Based on how much money you have available in your account, select one, two, three or more stocks you will invest in and look at them closely. If you use metrics Dan lists in his book, just compare those stocks current values with those metrics. Do they look better than listed or worse? If they look better than those listed, it is a great time to buy your first initial position.

A dividend itself can also help you to find out, whether the stock is undervalued or overvalued. Let’s take a look at an example of Johnson & Johnson (JNJ). About a year ago the stock traded in a range around $65 a share and the dividend yield was around 3.6%. If you have your yield threshold set at 3.5% for example, you would be allowed to invest in this stock. As the JNJ price ran up, the yield dropped down to 2.9% at one point. As of this writing the yield is 3.0%.

Your strategy won’t allow you investing in this company anymore. It is too expensive and you have to wait for the company to do two things:

  1. The price to drop and yield go back up above your 3.5% threshold, or
  2. The company raise its dividend so the new yield will be again 3.5% or more.

Of course this is just an example, but it can help you keep it simple. As you progress over time, you will be adding more metrics to your strategy and polish it into perfection.

Good luck and start reading about dividend growth stocks and learn how to invest in them. You will beat the market by doing it.




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Posted by Martin July 07, 2013
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My inspiration in the last week #27

My inspiration in the last week #27

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

 
 




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My Investments 2Q 2013 results

My Investments 2Q 2013 results

I am publishing my 2Q 2013 results of my goals and investments. The second quarter was very bumpy. The first part of the quarter was quite successful, the second part wasn’t. Much of the investment gains were erased by the correction on the markets. This value drop had a little impact on dividends. This is why I like dividend investing because no matter what happens to the principal of your portfolio, your income is intact (unless the company cuts the dividend).

From the tables below you can see that my dividend income increased to $2,098.68 annual dividend income ($174 monthly). Nothing extra ordinary, but improvement.

My 2013 Overall review

Here are data from all my accounts I have:

My 2013 goals progress

The table below shows the progress of the goals:

My 2013 Options Income

The chart shows that I accomplished another goal and that is to create a $100 monthly income stream by selling options. I actually exceeded the goal. The chart below shows the progress of my options income.

Options Income

My 2013 TD account value

The TD account value stalled this quarter due to some significant drops in REIT sector which I am significantly exposed to. As I said above, I am fine with this as long as my dividend income stream is intact.

The chart below shows the account value YTD.

Account value

My 2013 Dividend Income

I am still building my dividend income. This goal may however be postponed due to more important goal – the debt elimination goal.

The chart below shows my YTD Quarter dividend income:

Dividend income

My 2013 Portfolios vs. benchmarks

This chart indicates that my 2nd quarter wasn’t able to exceed the benchmark. I believe however that in long run I will be able to grow faster.

Portfolio vs Benchmark

From the chart it is apparent that my portfolio was growing well, but the REITs selloff erased all gains. Although this may look bad, to me it is not. This is only a short term drop which in long term is insignificant.

My 2013 Debt reduction goal

I must admit I failed this goal during this quarter. I lowered the debt, but at the end I increased it a bit again. Overall I am still lower than at the beginning, but not as I wished. So the next quarter my effort will be even harder in eliminating the debt.

Once again I could see myself how important the zero debt is when aggressively investing. The point is that if you want to invest aggressively, take riskier trades, use margin, and so on, you cannot be carrying debt.

During this quarter price correction on the market I faced a small maintenance call on my TD account. I had to pay circa 300 dollars to keep the account current. I could do it using my reserves, but it was a hard lesson because without reserves I would be in a big trouble. Paying large amounts in debt payments and satisfying margin calls for example can kill your effort.

My failure was due to our Disneyland trip. I saved money for this trip, but not enough and we exceeded the budget. So this quarter my effort in eliminating the debt is reinforced and I will work even harder towards this goal.

The charts below show my debt elimination progress:

Debt reduction

And here is my debt allocation chart:

Debt allocation

I follow my debt allocation because my plan is to use zero APR credit cards and low interest loans to refinance my debt and lower the interest rate over time to speed up my debt repayment effort. I will be using this strategy in the next quarter as much as possible.

I hope you had a great 2nd quarter yourself and that you achieved your goals or at least got closer to them. I hope my third quarter will be even better.

 




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Make options easy – how to sell puts

Make options easy - how to sell puts

This article is for beginners who never traded options but wanted to give it a shot because they understand how powerful options can be in making money. If you want monthly income besides dividends, trading options can be a great tool for you to boost your portfolio.

If you want to learn trading options and generate income every month or every other month (it depends on how much money you are willing to commit) the strategy I am about to explain can be a great learning start for you.

Recently, I discussed options trading with a few people, friends and even my co-worker and I surprisingly found out that there are a lot of people who are afraid of options or have little knowledge about this topic.

It is OK to fear options since the fear can make you cautious but it can also paralyze you from trading. Over my trading and investing career I traded all sorts of option strategies, such as iron condor (my favorite), butterfly and both put and call spreads. I made money, but I also lost money. At the end I didn’t feel comfortable with the advanced options trades. It could have been because of lack of my knowledge or just those trades did not fit into my investor’s profile.Buy stocks

I searched what options trades can make me feel comfortable. Here is a simple strategy which you can use and which can provide you with peace of mind and calm nights.

Trading options is surprisingly easy and safe although you will hear otherwise from people and brokers. They will even give you a disclaimer to read where they will scare you to death from trading options.

Options trading approval

To trade options you need to be approved from your broker. I won’t describe the process here. Contact your broker and get approval for basic options trading – covered calls and cash secured puts. This shouldn’t be a problem and you should obtain it easily.

Simple put selling strategy

The first and simplest strategy is selling put contracts against stocks. In this article I assume you already know what calls and puts are. If not, take some books or search the internet to find out.

As with stocks, you can be buying options and you can be shorting (selling) options. In this article I will show you how to easily sell puts (short puts). Why do you want to be selling puts instead of buying them? When selling puts you will have a powerful friend on your side. That friend is time. With this friend, you do not have to worry about your put contract during its entire life. When buying options, time will be against you and the underlying stock will have to move by a large point in order to make money. When selling, you want time to deteriorate your option.

Money making machine

The second benefit is that you get paid for selling the put and that money will be yours forever and no one can take it away.Money Machine

Once approved you need to select your strategy. If you have no experience with options, how to roll them higher, lower or further away in time, this simple strategy would be the best for you:

  1. Always sell puts against stocks you are OK to own. This means that you first select stocks you would normally buy yourself. I suppose you are an investor and you buy stocks to make money. The stocks you already have in your portfolio or in your watch list are your best candidates for simple put selling strategy. For example, I have a few stocks in my watch list such as GLW, SWY, FGP, T, O, etc., which I want to buy. Instead of buying those stocks right now, I would use them for my put selling strategy. For our example I chose Corning Inc. (GLW). It is a dividend paying stock which I want to buy although not right now.
  2. Once you selected a stock you want to use for your income machine, find the options chain. Go to your broker account and under GLW stock summary find a link which can take you to the stock’s option chain. On the screen you will see two major columns. The left will be for calls, the right one will be for puts. I usually want to sell a contract with expiration day two to three months ahead.
  3. Which put contract to sell?. The picture below shows a typical options chain table. On the right side you will see put contracts. The colored lines indicate in-the-money (ITM) contracts, the white lines indicate out-of-the-money (OTM) contracts. If you are very bullish on the stock, you can select ITM contract (15.00 strike), if you are not sure which direction the stock will go, select the nearest OTM contract (14.00 strike). In our example I would go with November 16, 2013 contract, 14.00 strike and I would receive 0.92 or $92 per one contract.
  4. Options chain

    Click to enlarge.

  5. Execute the trade. When you click on the 0.92 link on your broker’s screen, you will be prompted to a trade form entering a trade to sell 1 GLW Nov 16, 2013 14 put at 0.92. Make sure you are really selling and not buying the contract. Once executed, you will see that you are negative (short) one put contract of GWL. Now you just collected 92 dollars and all your effort is over until November 16th 2013.
  6. No need for analysis. Keep it simple. You do not need any analysis or sophisticated knowledge with this strategy. All you need is to select a stock you are OK to own, select a proper put contract and sell it. You do not have to deal with Delta, Gamma, Theta, volume or open interest with this strategy. You also do not have to worry what direction the stock will go in the future. If anybody tries to tell you otherwise, he is probably trying to impress you with his (lack of) knowledge of trading options. Ignore them, you really do not need anything they will try to sell you. All you have to do once you executed a trade is to wait.

What’s next after you sold a put contract?

After you sold your put contract and collected your premium the next thing to do is wait. You will wait until expiration in November. There are three possible outcomes which may happen to you during your waiting time.

  1. Worthless expiration. The first thing which can happen to you is that our stock will be trading above $14 strike price on November 16th. In that case our put contract will lose its value and becomes worthless. Our friend time will destroy it. And it is a good thing! It is what we want. We sold a contract for 92 dollars and now it is worth zero dollars. We keep our $92 premium we received. And the best part is that you can repeat the entire process again and again.
  2. Assignment. The second outcome which can happen to you is that our stock will drop below 14 strike on November 16th. In that case our contract will be ITM and we will be assigned 100 shares of GLW @ 14 dollars a share. Let’s say GLW will be trading at $12.98 a share at expiration day. You will have to buy 100 shares for 14 dollars a share instead of $12.98 a share. Although it looks like a bad deal, do not forget that you have received 0.92 a share, so in reality you are buying for $13.08 (14.00 – 0.92 = 13.08). It is the same as buying for $14 dollars a share but three months later (minus premium received). You wanted this stock anyway right? Instead of buying it for $14 a share today, you will buy it for $13.08 three months later.
  3. Early assignment. The third outcome is that you get assigned prematurely. That can happen to you if the stock drops so deep in price that the buyer who originally bought the contract from you decides to execute the option before its maturity day. Although very unlikely, it is a possible option. If that happens to you, it may not be pleasant either since you will be buying a stock for 14 dollars a share while it is trading for let’s say $6 a share at the time of assignment. In this case you worked as an insurance company for the buyer of your put contract. This is a great example and a reason for selling puts against stocks you want basically at any price. If this happens to GLW you can start selling calls to fix the trade and collect dividends while waiting for recovery. Selling calls will be my next post.

The above described strategy is basically a win-win strategy. No matter what happened you collected an income and you can repeat the process, or you bought a stock you wanted to buy anyway.

Below is a chart of my current options trading showing my income machine. It shows my collected premiums from put selling and from so called total return covered calls selling.

This strategy gives me a peace of mind while trading it. It boosts income in my portfolio (besides dividends). I no longer have to predict what the stock may do in three months or construct sophisticated options contracts. I do not have to care about the contract at all as long as I still want to buy the stock. I used this strategy to learn in real life about options and I could learn a lot without fear of losing money. You can do the same. Select the stock and sell puts against it as long as you get assigned or collect income indefinitely. You do not have to worry about anything. It is that simple.

Try it and let me know how that worked for you. Also contact me if you need help or detailed explanation.

 




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