WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
CHECK OUR TRADES ON OUR MeWe PAGE!


Posted by Martin September 27, 2020
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Looks like the correction is over… boys are chasing the market up again…

Looks like the correction is over... boys are chasing the market up again...

If you were waiting for lower prices and wanted to buy in, do it quickly otherwise you just missed the boat. It seems, the 10% correction is over and we are heading up again. Not because anything has changed or the economy improved over Saturday and Sunday, but because the market players just had their mood changed and what was bad last week is no longer bad but a bargain.

I may be wrong, but the market looks extremely bullish to me.

I kinda hate it that for the last four weeks the market was falling with only a little blip in the middle and today it seems it is set for a mindless upward moving. I just hope, I am wrong and we are going to see more downside although, I am skeptical, and it is probably time to switch gears and go bullish again.

We have hit 61% retracement, Friday trading was very strong and futures are pointing for a strong open. A zig-zag move up seems inevitable.

 
S&P 500 chart




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Posted by Martin September 27, 2020
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Don’t waste money on $4,000+ seminars with bites for more $$$ seminars

Don't waste money on $4,000+ seminars with bites for more $$$ seminars

Just now, I have come across an announcement on Youtube about a never ever before and never ever in the future offered trading seminar with pre-lockdown and post-lockdown prices… “literally you get 50% off”…

So I went to the website, announcing such a great deal, to check those pre-lockdown and after-lockdown, never seen prices, and the seminars ranged from $997 to $3,997… Great discounts!

Are you kidding me?
 

computer trading

 
And then, I read the comments under the video. I thought I was dreaming, well, I couldn’t believe what I have read. Thank you letters. We are saving for your seminar, 75% saved! Love and respect! Glad to be here! Glad to hand you my hard-earned money for learning what I can learn on the internet for free!
 

Are you kidding me again?

Well, this is really good and I bet these are great seminars! Unfortunately, not for you! It is great for seminar peddlers. No matter how great those seminars are, no matter how great the trader offering it is, DO NOT WASTE YOUR MONEY!

You won’t learn anything that is free on the internet. There is no secret, no magic formula, no short cut to riches. No magic seminar won’t make you rich quick.

If you could save $4,000 for a questionable seminar, then take that money and put them to work on your own. Don’t throw them out of the window for a good feeling that you might become a great trader on Friday afternoon and quit jor job on Monday morning because you attended a seminar for $4,000 of the dead Presidents! It doesn’t work that way! You throw the money out of the window and then start saving money to put the seminar knowledge in practice? Is that your strategy? Before you save another, at least, $5,000 to trade, you will forget everything you might have learned in the seminar and you would have to start over. And even if you remember everything from the seminar, in the end, you will learn that you need to purchase another, never before offered seminar for $8,000 per day with the guru himself watching over your shoulder. But, it will not be the guru himself but his left-hand associate because if you really need a guru himself to teach you personally, you have to buy a $50,000 personal coaching course…
 

Don’t be a fool!
 

I thought that these days in the era of free, no commissioning trading, people can learn and trade on their own. Yet, peddlers are still making their millions selling holy grails to fools.
 

Trading, or investing in the stock market is about things no one will be ever able to teach you but only you yourself. You need to put an effort to learn to trade. If you are really interested in this business, go to the internet, start searching topics you are interested in and learn on your own.
 

Are you interested in options?

Then search topics about “how to trade options”.

Are you interested in stocks?

Then search topics about “how to trade stocks”.

Are you interested in dividend investing?

Then search topics “how to invest in dividend stocks”.

Are you interested in forex?

Then search topics “how to trade forex”… or commodities, or futures, or anything on this planet… but you have to learn it yourself. And you can learn it for free, or a smaller cost than $4,000 for a seminar.

(Photo by Windows and Toni Koraza on Unsplash)




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Posted by Martin September 23, 2020
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The market keeps struggling, but it’s good folks!

The market keeps struggling, but it's good folks!

The market struggles to find the ground. A few bounce attempts failed. We are currently down -1.56% and it seems we are heading towards 200 DMA.

 

 

But this is ultimately a good thing, providing this market with a much needed correction. We rallied up hard with no break or pullbacks and we need to correct this craziness. Just make sure, you trade conservatively to preserve capital.

I keep accumulating cheap stocks (and there are many to choose from) and if this market keeps sliding, more cheap stocks will pop up.

We are 21 days into the correction of 10% as of today. You may expect this to be up to 15% correction (it seems like we are heading that way) or we may even enter a 20% bear market. But nothing goes down forever and I am preparing my ammunition for a potential reversal and buying stocks on sale.

Good luck and stay safe!




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Posted by Martin September 23, 2020
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Bought 14 PBCT shares @ 10.29


We added 14 shares of PBCT stock to our holdings in the account #1 and we have reached 100 shares in this account.

We will now start selling a covered strangle against this position (covered calls and cash-secured puts) to lower our cost basis.

Our current cost basis is $10.86 and we hope to be selling enough options to end up owning this stock for free (in other words, monetizing this position will generate enough income to return all our invested capital back to us, something Warren Buffett does, too).

We will utilize a “wheel of fortune” strategy. If we get assigned to our calls and forced to sell our 100 shares, we will start selling cash-secured puts (2 contracts), if our cash secured puts get assigned and we will be forced to buy additional 100 shares, we will buy and start selling 2 covered calls contracts.

 




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Posted by Martin September 21, 2020
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Selling covered calls below cost basis


  • This post is about my view on selling covered calls below the cost basis of your stock (stock purchase price) when overwriting your portfolio.
  • Is it a problem or a betterment to your portfolio?
  • Other implications, such as taxes.

 

I have seen investors expressing their concerns when the markets dropped earlier this year and now when we are seeing another 10% (and maybe even more than that) correction. Many said, that they had to sell their covered calls below their purchase price and now they are worried that if a stock goes up, they may be assigned and realize a significant loss being forced selling their position below their cost basis.

I was afraid of this event too. But, I was thinking about this and realized, that being assigned, is not such a bad thing as you may think. Let’s review my thinking process and see what roadblocks are there when selling covered calls and you have to sell below your cost basis.
 

If you are like me and try to build and accumulate your portfolio, you may have been accumulating shares of your favorite stocks when the market was all booming, everybody was optimistic, FED was raising interest rates (well, maybe not yet), the economy was rosy, someone was boasting how great job he has done and multiplied your 401k, the future was brighter and brighter every day, and you kept buying and buying your dream shares.

Then, you have reached your goal and accumulated 100 shares of your favorite stock and started selling covered calls to boost your income, so you too could boast about your investing skills.

But then, all the bright future dimmed. Actually, the future just crashed, you got sick seeing your work disappear and now, you were thinking: “What now?”
 

I had the same experience. I accumulated 100 shares of AT&T (T) and my cost basis was $31.94 (I was lucky on this one as I have another great stock which I accumulated at a lot higher cost). Today, AT&T is trading at $28.63. Looking at the options chain, there is no premium at the cost basis or above. No matter which expiration you look at, there is no premium worth taking the risk of an assignment.
 

What to do?
 

You have two options:
 
1) Do nothing, stop selling covered calls until the stock price recovers at or above your cost basis, and then you can start selling covered calls again.
Or
2) Keep selling covered calls but below your cost basis to collect a decent premium. For example, selling a 60 DTE at 30 strike can bring you 0.37 cents or 37 dollars premium. It is OK. I can take it.
 

But wait a minute. If you sell at 30 strike with a 31.94 cost basis and get assigned, you will realize a $1.94 or $194 loss! The premium will lower the loss but not much. And I do not want the loss.
 

There are again a few options you have
 
1) Try to keep rolling your calls higher and away in time. I have done that on a few positions to avoid their assignment and give the stock time to recover.
2) Close the position before it gets in the money. The closing cost will be probably less than the full loss and that may be acceptable for you.
Or
3) Let it assigned.

Once you get assigned, I usually use the proceeds to sell in the money puts. For example, I got assigned and my shares were called away at 30 a share but I immediately sold 29 in the money puts and collected 1.11 credit. If the stock stays depressed, then I get assigned and buy my 100 shares back at 29 a share. If the stock starts moving higher, I start rolling my puts higher too, collecting more credit.
 

What have I just achieved here?
 

First, I have collected a $37 credit on the original covered call.
Second, I got assigned, sold my 100 shares and realized $194 loss on the stock.
Third, I sold new in the money put and collected $111 credit.
Fourth, I lowered my original $31.94 cost basis down to a new $29 a share cost basis.
Fith, I can now sell a new covered call with 30 dollars strike, collect additional 0.40 credit and have a potential gain of $100 on the stock if I get assigned again.
 

I see this as betterment for my portfolio. For a small cost, I could “roll” my stock down, improve my position, and gain potential. And the cost I paid (about 0.46 per contract or 100 shares) was quickly offset by the new covered call sale and added potential gain on the stock which would not be possible should my original cost basis stay.
 

What’s the catch here?
 

Honestly, I do not see many (though there are a few). I actually liked the result of improving my portfolio holdings. The only issue is that you may lose a dividend if this swap of cost basis happens around the ex-dividend day and you happen to be so unlucky that you miss the dividend. In this case, it is better to buy shares outright and not using puts to buy in.

The second issue could be a taxable event. If you were called away on your stock prior to the minimum tax holding period in order to treat your sale as a long term gain and not a short term one, you may be hit with a higher income tax. Also, if you sell the stock and buy back in the position within the 30 day period, this would be treated as a wash sale and you will not be able to use the tax loss to offset your tax gains. However, my trades are small at this time that I do not worry about these events yet.
 

What about you? Are you afraid selling covered calls below your cost basis?
 




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Posted by Martin September 05, 2020
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Stocks to accumulate in September 2020


In my portfolio watch list, only a handful of stocks are good to buy in this overvalued market. The list is not yet complete, but I have time to fill in other stocks later on.

Most of the stocks are dividend aristocrats. Some lost the status many years ago yet I decided to keep them, others lost the status this year due to COVID, and I decided to keep them too as I still think they are good companies, e.g. Disney (DIS) and the dividend cut or suspension is temporary.
 

S&P 500 heat map
 




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Posted by Martin September 05, 2020
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Problems with valuations, again.


Account Net-Liq: $7,477.66
SPX value: 3,426.96
Shiller PE: 31.47
 

In my older post I wrote about the market high valuations and how you can mitigate the problem with valuation.

You hear (and read) people complaining that valuations are high and there is nothing to invest in. It is not true. And people who say that do not do their homework properly.

I must admit, that when I was writing my original post, I too made the same mistake and looked at stocks via whole market magnifying glass and ignored the reality, that the whole market doesn’t represent the stocks. It is the stocks that represent the market. Unfortunately, SPX or SPY represents only a fraction of the market and it can be easily manipulated by a few stocks. Before you start complaining about it, let me assure you, it has been like that since the inception of the aforementioned indexes. They were set up that way from the beginning and there will always be stocks that have significant weight to push SPX higher although the entire market is different.

It was the case with the recent rally. The SPX was rallying hard and many could get the impression that all stocks became expensive. Nope, it was only a few tech stocks that moved the market, others lagged.

I could see this phenomenon in my portfolio. While SPX was making new all-time highs, my portfolio net-liq was going down. It was best illustrated when you looked at the heat map back then.

This is how the S&P500 heat map looked like:
 

S&P 500 heat map
 

It is obvious what was driving the market up. Technology stocks, communications… everything else was red. It is something you would expect. People are sitting at home, doing nothing, some trading stocks at Robinhood and losing money, others using computers, like kids in schools, shopping, watching TV shows, or zoom, go-to-meeting app, or other apps to do their job (those lucky enough to have a job). Other businesses struggle.

This is how IWM, representing small caps looked like:
 

IWM heat map
 

I am pointing this up to show that although the market, represented by SPX, was making new highs, not all stocks participated in this rally. And even if they did, they were still undervalued by their earnings and P/E measures.

If people really keep screaming about the market being overvalued, then they do not really look under the surface. And I must admit, I fell for this too and dismissed the entire market as overvalued meaning all stocks were overvalued.

But, they were not.

In my previous post I published the following table indicating high quality dividend aristocrats with great dividend history and highest yield among the aristocrats.
 

Dividend aristocrats accumulation
 

And I was eager to start accumulating these shares as per my original plan and once I reached 100 shares, start selling covered calls. My only defense against high valuation was selling covered calls and puts around these positions and lower my cost basis.

However, I decided to take another look at valuations when I realized that not all stocks are overvalued. Some may be valued correctly, some still undervalued, and of course some grossly overvalued.

I took another look at my previous selection and decided to add a few comparisons. My criteria for valuation were:
 

  • Current P/E
  • Theoretical (calculated) multiple P/E value based on market historical valuations
  • Calculated intrinsic value based on earnings growth and P/E multiple
  • Income generated from dividends must beat income from S&P 500
  • Stock growth must beat S&P 500 growth

 

Based on these criteria I reviewed my previous selection once again and the result was that only two companies were undervalued and beat the market:
 

Dividend aristocrats accumulation
 

From the new table, there are two patterns I am going to follow:
 

  1. All three criteria must be met, that is, the stock must be undervalued, its income and growth must beat the market.
  2. It is OK to have a stock that is undervalued and its income beats the market only.

 

Based on these results, I will be accumulating stocks that meet all three criteria (pattern #1), and eventually, once all stocks of my interest are all accumulated, I may start accumulating stocks that meet only two criteria (pattern #2). However, the valuation of any stock must be always “green” (undervalued) in order to keep buying these shares. If a stock is overvalued, I will skip purchasing and wait for a correction or pullback to start buying.

There are stocks, though, that will always trade at high valuation (premium) no matter what. For example, Realty Income (O) was always overvalued. I checked the 20-year history of this stock and it never traded at its earnings valuation. Only once in the 20-year period, the stock pulled back to its fair value – in 2008.

The same valuation issue is with Coca Cola (KO). The stock always traded at a premium to its fair value. Waiting for it to be fairly valued, you would never buy. It only happened once when the stock pulled back to its fair value – in 2008.

These are stocks I consider high-quality stocks and I like to own them. Buying them, though, I would have to bring their valuation artificially down – using options and selling puts and covered calls.




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Posted by Martin September 04, 2020
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6.6% correction, is this the end or not?


Account Net-Liq: $7,143.75
SPX value: 3,444.02
Shiller PE: 31.58
 

Is this the end of the correction? Or just a bounce before we go back lower? If you look at today’s price action, the swing is spectacular. We have seen it in 2018 happening when the market crashed more than 2% and then ended where it started recovering more than 2%. We even have seen times when the market crashed more than 2% and recovered more than 2%, and added some! All in one day.

I have been trading for some time (since 1996) but do not recall times with such violent swings in such a short period of time. But I am old and my memory is failing me, I guess. Nevertheless, a few days long declines were typically followed by a few days long recoveries. In the past. Today, we have a one day bum, and the next day it is all gone. Just look at today’s trading chart:

 
SPX corrections
 

Of course, the price may change before I finish writing this however, I do not expect it. We have seen a two days long correction of a 6.6% and it seems, it will be all gone today. We may not necessarily end in the green today, but next week everything will be forgotten.
 

SPX 6.6% correction
 

Yesterday, I was frustrated over this price action as it was ruining my SPX trade repair efforts and now it looks like, I will be back on track fixing my early mistakes. If we start rallying again next week, I may be back in trouble on the call side.

As a reminder, last few years, I tried to actively trade SPX options, zero DTE trades, Iron Condors and strangles. I ruined my accounts. I tried to push it. I tried to study how to trade these trades and be successful. I never made it. And, I am officially admitting, that I was wrong, and maybe not as gifted as others who trade these trades successfully. I may have been undercapitalized for these types of trades or not glued to the computer monitor long enough, or not able to adjust fast enough, or whatever I was doing wrong, I never figured out how to fix a bad trade without losing money. Today, I have a few bad trades I drag around. I keep rolling them to get them into expiration without large losses and use other trades to generate income to pay for these repairs. It works so far, but in a market like this, it can be very frustrating. And, when I am done with these repairs, I will not trade these trades anymore. I am going back to my original strategy from 1996 – 2014 which worked but it was not a quick-rich scheme trading I wanted.

What to do today? Buy the dip. Because it is all it was. A great opportunity to enter into positions you may have liquidated a long time ago. Or establish new ones. Next week will be bullish again.

 
 

If you are interested to see what stocks and what options we trade, then join us at MeWe. We no longer participate at Facebook (very little though) but we are active at MeWe.




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Posted by Martin September 03, 2020
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The market crashed 4.5% today, finally!


Account Net-Liq: $7,202.95
SPX value: 3,455.06
Shiller PE: 31.73
 

The market rallied and reached a 3,588.11 level. All new ATH! Outstanding rally! Unfortunately, that rally was totally unhealthy and pushed up by tech companies only. Many of my positions in all portfolios went pretty much nowhere, the only SPY was relentlessly running up and up every single day. It became frustrating at some point. The problem I got was that I was trying to repair my SPX position. With the rally, I had to raise my puts and calls higher. And, honestly, I started feeling uncomfortable with it.

So, when we crashed almost 5% today, the market sliced through my puts ruining all my effort to repair the trade and release some BP. That is more frustrating as I am running out of cash and repairing the trade was already costly.

Now, will the market drift lower? Continue the selloff? Or are we seeing a pullback that will recover in a few days? A million-dollar question. I think I will start lowering my puts until I can see where we are heading next. However, these violent moves up and then crash back down is frustrating. It diminishes all my efforts.

 
SPX corrections
 

SPX chart 4.5% selloff
 

At least, my Boeing (BA) position which I started repairing sometimes ago is doing well. The difference between BA and SPX is that BA was falling steadily with now violent moves up or down.

 
BA repair

 
 

If you are interested to see what stocks and what options we trade, then join us at MeWe. We no longer participate at Facebook (very little though) but we are active at MeWe.




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Posted by Martin August 26, 2020
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Where to store cash for a while?


Account Net-Liq: $7,437.20
SPX value: 3,479.73
Shiller PE: 32.01
 

I was looking for opportunities where I can store my cash in my trading account in lieu of leaving it in the account, sitting there and doing nothing.

I also didn’t want to withdraw them and save it in a savings account. That would work against my Net-Liq.

I also wanted the money to be blocked, so I couldn’t use them in other trades. I am now saving cash for another trade I want to take (buy LEAPS against SPY and start selling covered calls) and I must admit my discipline is not yet perfect and I might be tempted to use that money on another trade. So locking the cash in equity which would not lose value and even make some would be perfect.

But, where could you put your money, short term, preserve their value, and maybe make some? Make better than 0.0009 APY the broker may pay you for cash?

This is a question to savers all around the world too. If you look at the current savings accounts rates, you would want to cry!

 
High Yield Savings Accounts Yields
 

The rates are pitiful and they may drop even lower. Poor savers! Retired people who depended on CDs or savings accounts are ruined.

I finally found a good opportunity! Thanks to another investor in a Facebook group, who pointed me to an opportunity which may do exactly what I am looking for – safety, stability, and some decent income.
 

iShares Ultra Short-Term Bond ETF (ICSH)
 

ICSH is a short term bond ETF that seems to fulfill my needs. It holds its value (slightly going up), it pays dividends (nothing extra), the yield is about 2.20% at the current price of $50.56 a share, but definitely better than today’s high yield savings accounts) and during March selloff it only lost about 4.45% while the entire market lost almost 40%. Not bad in my opinion. And, it pays a monthly dividend.

 
iShares Ultra Short-Term Bond ETF (ICSH)

iShares Ultra Short-Term Bond ETF (ICSH)
 

I believe, this is a good way to hold cash, or if you are afraid of the stock market, or a retiree and looking for a savings account which pays better yield (a lot better) than current high yield savings accounts, then, in my opinion, ICSH is a good option to do.

Thus, my goal is to save $4,000 in my brokerage account and then buy SPY LEAPS calls and start selling covered calls. I will be saving my cash using ICSH.

 
My 2020 investment goal
 
 

If you are interested to see what stocks and what options we trade, then join us at MeWe. We no longer participate at Facebook (very little though) but we are active at MeWe.




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