Avoid Pure Plays in Banking For Now


This week, the bulk of the firms in the financial sector are wrapping up the reporting of their earnings for the first quarter. And whether it be to your dismay, surprise or pleasure, the numbers they are reporting are not as bad as what had been anticipated.

Most of the big banks reported last week, and for the most part, they beat analysts’ estimates. So far this week, other firms in the sector are also beating analysts’ estimates. Cheers over these beats are mitigated, however, because analysts’ estimates have been continuously lowered since the beginning of the year. The reason stems from analysts taking into account the myriad of pressures financial firms are enduring in the current business environment.

As the remaining firms in the sector report Q1 2016 earnings this week, investors are trying to make heads or tails of how to play the market moving forward. Considering what earnings are indicating so far, it may be best to avoid pure plays and instead focus on banks with diversified lines of business.

 

 · What’s nagging the financial sector

 

Firms in the financial sector have been plagued by a slew of factors that affect their top and bottom lines. These factors include lower interest rates and tighter banking regulations. The big banks’ situations have been aggravated by slumping oil prices that negatively affect the value of the loans they made to energy companies. This has especially been the case for banks that made loans to companies in the oil and gas sector. Many of these companies have been unable to make their loan payments because they took huge losses when oil prices declined.

To mitigate these loan losses, some banks have increased loss provisions on these loans. These banks include Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC).

I brought you a story last week about these particular big banks, among others, reporting their earnings, and noted that another challenge they have faced relates to federal regulations. Banks are still dealing with the effects of the new rules that went into governing derivatives. The rules went into effect in 2010 due to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the act requires banks to post billions of dollars of collateral for certain derivatives trades.

Another challenge coming out of Dodd-Frank relates to living wills. As JPMorgan rolled out its better than expected earnings last week, federal regulators announced it being one of five major banks that it still has concerns about when it comes to the plans.

Specifically, Dodd-Frank requires that bank holding companies with total consolidated assets of $50 billion or more periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. Each of these living will plans must describe the company’s strategy for “rapid and orderly resolution in the event of material financial distress or failure of the company, and include both public and confidential sections.” Certain nonbank financial companies designated for supervision by the Federal Reserve must also have living wills in place.

The other banks that were dinged over their living wills were Bank of America, Wells Fargo, Bank of New York Mellon Corp. and State Street Corp. All of these banks have until Oct. 1 to submit revised living wills. If their revisions don’t pass muster, the banks could be subject to higher capital requirements.

 

 · Diversity is key

 

One of the learning lessons to come from the performance of banks during the first quarter relates to which of them have the best chances to continue to improve their earnings. This brings me to my point about pure plays.

As you know, pure plays relate to companies that typically focus on particular products and services. This allows them to carve out most of the market share. On that same note, pure plays can present higher risks because they don’t offer or focus on offering diversified products and services. Examples of pure plays in the financial sector include Goldman Sachs and Morgan Stanley (NYSE: MS).

The weaknesses of being a pure play company versus being a diversified company were seen clearly in the Q1 2016 earnings of banks. JPMorgan and Bank of America, which offer more diversified products than do pure plays, saw their net incomes rise compared to the numbers posted a year ago for the same period.

For example, JPMorgan and Bank of America have large consumer divisions and neither of them relies solely on investment banking. Goldman Sachs and Morgan Stanley, on the other hand, saw their net incomes fall more significantly. Consider the revenues the banks derive from fixed income trading. This is the bread and butter for Goldman Sachs and Morgan Stanley. Revenues from this trading fell 47% and 50%, respectively. That compares to declines of 13% for JPMorgan and 17% for Bank of America.

 

 · Moving forward

 

I see banks reporting stronger numbers in each of the remaining quarters of the year. The living wills will present challenges, but banks have been crafting plans to meet federal rules since they took effect in 2010 when Dodd-Frank went into effect.

Steer clear of the pure plays as they continue to work in this interest rate environment. While trading activity picked up in the first quarter for some investment houses, I’d like to see that trend continue for the next few quarters.

Investors should continue to factor in interest rates and global economic activity and their effects on bank stocks. Also, remember that despite being so beat down, many firms in the financial sector are still attractive on a valuation basis.

Also consider that operating margins have been going up in banks, while they are falling in companies in other sectors in the S&P 500. That is a positive that observers note indicates that banks will be able to generate stronger sales and earnings in the long term.

 




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Posted by Martin April 14, 2016
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Handling a losing trade after assignment


It is interesting how things in the stock market can turn on a dime. Yesterday all my stock positions were great, and the sky was at the tip of my fingers, today, everything is the exact opposite.
A few trades which i have opened yesterday and which were doing well are now in the money (ITM).

For example Mosaic (MOS) put selling trade had a nice cushion when I was opening the trade. Seagate (STX) was even better and well above my strike. It almost looked like there is nothing what could stop this trade from being a success.

Today, it is all about a disaster. Seagate sank 18% on the dismal Q3 outlook and it is deep ITM. It will be difficult to handle this trade now.

Although, I will make money on the put I sold against STX, the stock is now almost $600 loss. There is still 38 days to go until expiration and unless I see an early assignment the stock may still recover before then.

I had a similar experience already with stocks like LULU which i sold put against it and the stock went down deep in the money. It is now recovering and it is close to my strike already.

Or TRGP. Another example of a put selling strategy where I sold a put and the stock sank deep ITM. Three days before expiration the stock rallied and I could buy it back almost worthless.

Same was COP trade. I sold the put, it sank deep ITM but six days later the stock rallied again and I could buy the position back at 50% credit.

Or KMI stock. It was too “dancing on the floor” being mostly in the money (not deep in the money) and three days prior to expiration it went up and I could buy it back worthless.

So there is always hope in every trade and no need to panic when things turn around. The important thing is to have a plan and know what to do when certain things happen. This was the lesson I was learning last two years.

 

 · How to handle a losing trade then?

 

If you follow my posts and my blog, you may know that my strategy is to be selling puts as long as you get assigned. Once you get assigned, you keep the stock, collect dividends, and sell covered calls as long as you get assigned.

I sold put against STX with 33 strike and collected 1.47 credit.

My break even price is 31.53 a share.

The stock is selling at 27.67.

If I get assigned at 33 a share. I will realize 1.47 or $147 gain on the put trade, but my stock will see 5.33 or $533 loss (3.86 or $386 net loss).

When selling covered calls, mostly I will not be able to sell a covered call at the same strike as was the assignment (33 strike) as it will probably be worthless already.

I will have to be selling as high strike as possible (for example 28 strike) to collect enough premium but not get assigned and have the stock called away. Hopefully, in this way I will be able to collect enough additional premium to lower the cost basis and end at least break even.

If I get assigned to the call at 28 strike, then I will realize a gain on the call, but close the stock trade at $500 loss (33 put assignment minus 28 call assignment).

Let’s see how this trade develops over time.
 
 




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Q1 Earnings for Big Banks Expected to be Dismal; Improvements on Horizon


Well, it is earnings season time again. Companies begin to report their earnings for the first quarter on Monday, with the traditional season opener Alcoa (AA) leading the way. However, the stocks I will be watching most closely are big bank stocks, particularly considering the industry regulations they have had to deal with so that the banking debacle of 2008 won’t occur again.

The street expects for bank earnings for Q1 2016 to be bad. Most analysts forecast that earnings for the biggest banks to be down 20% for the largest banks, according to Thomson Reuters.

The big players

The big banks consist of JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and Goldman Sachs (GS).

JPMorgan is up first, reporting on April 13. It is also the largest of the group in terms of market cap, followed by Bank of America and Wells Fargo, which report on April 14. Then Citigroup, which reports on April 15. Goldman Sachs reports the following week on April 19.

Playing on a new field

For all of the big banks, trading was sluggish and volatile during the first quarter of the year. Declines in commodities prices aggravated the situation. While some of the banks saw trading activity increase last month, observers say it was not enough to make up for the declines in January and February.

Banks have also been challenged by restrictions on proprietary trading, which have left them less profitable. Larger capital required to participate in fixed-income trading has also been a challenge.

They are also still dealing with the effects of the new rules that went into governing derivatives. The rules went into effect in 2010 due to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the act requires banks to post billions of dollars of collateral for certain derivatives trades.

Analysts who follow the performance of these banks have been lowering their first-quarter estimates all quarter. Reuters reported the following:

JPMorgan is expected to report adjusted earnings of $1.30 per share, Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Goldman is expected to report $3.00 per share. In fact, observers say Goldman Sachs had the worst quarter of all of the banks, with one report saying it has had the lowest first-quarter earnings since before the financial crisis.

Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Morgan Stanley to report 63 cents per share. Goldman is expected to report $3.00 per share, the lowest first-quarter earnings since before the financial crisis.

While there are skeptics, I think that the banks that are able to generate good returns above their costs of capital stand to improve their financials over the course of this year and into next year. If they can maintain or improve their credit qualities and increase their capital levels, they could be good choices for investors whose tolerance has waned for these troubled banks. However, beware of companies that are trading below their tangible book values; this may signal their problems are insurmountable.

 

 

 

 

 

 




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Posted by TwillyD April 09, 2016
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Viacom’s Soul Train Buy Could Have Investors Tooting Their Horns


If you remember the Good Ole days of the 70s, you may get fuzzy butterflies when you read this story.

The music show, Soul Train, has been purchased by Viacom (VIAB). Even if you don’t remember the show, or you could care less, I thought to bring it to your attention because of the impact the purchase could have on Viacom’s bottom line. There may be some good investment opportunities if you are willing to stand to climate of the media industry right now.

The acquisition could be a boon for Viacom because it will couple the historically black music show with BET Networks, which is a division of Viacom. Viacom, like other media companies, are struggling in this new electronic age.

This combination represents an investment in an iconic franchise that lends itself to providing fans with a wide range of experiences across multiple platforms, beyond the television programs that audiences have watched for decades. The transaction serves to further strengthen BET’s investment in content and underlines the network’s leadership in music-related content.

According to a Viacom press release about the deal, owning Soul Train’s intellectual property will allow BET to further build on the success of the Soul Train Awards, which BET re-launched in 2009. It also strengthens the network’s commitment to original content. The assets acquired include one of the largest libraries of African American, music-oriented content in the world, including more than 1,100 television episodes and 40 television specials.

The addition of Soul Train could allow Viacom to create ancillary revenue opportunities ranging from live events to consumer products.

This is very important considering Viacom’s financial performance has led to declines in its stock price. Its shares are trading far lower than its 52-week high. It closed last week around $44, while its 52-week high was $72.72.

Also, on last week, RBC Capital Markets issued a negative note on Viacom. RBC’s action sent Viacom’s shares lower. RBC initiated coverage of the stock with an “underperform” rating and a $34 price target. The report stated overall that analysts, compared to its peers,  thought Viacom has “significant structural challenges” and “epitomizes ecosystem concerns.”

I won’t be too hard on Viacom, however. That’s because companies operating in the media space that are publicly traded are offering discounts on their stock trades like those that are usually seen when there is a recession. Many media stocks are selling off.

While it is faced with problems, Viacom has some characteristics that are positive. Its gross profit margin dropped slightly from 51.47% in the first quarter of 2015 to 49.49% in the first quarter of 2016. But its return on equity dropped from 69.95% to 50.59% for that same period.

Also, it offers a 3.84% dividend.

So maybe the Soul Train will offer the company just what it needs to get back on the right track. In the meantime, I think the company is a hold.

 




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Posted by TwillyD April 09, 2016
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Seeing Some Wrinkles in Yahoo! Acquisition


After Verizon (VZ) bought AOL (AOL) last year, I said to myself (like many others probably), “which big wireless carrier is setting its sights on the other Internet company – Yahoo!?”

Could it be AT&T (T) or Sprint (S)? The last thing I thought was that Verizon would go after the failing Yahoo!, snapping up the one of the last remaining Internet providers. This is not a good year. I had sharp pains of AOL getting in over its head by purchasing Time Warner in 2000. My concerns were eased a bit when I heard that Google (GOOG) or Alphabet (GOOGL), may get in on the deal. No matter, one of the last surviving Internet providers, Yahoo!, is at the end of the days as we know it. Even Time (TIME) may throw a bid out there.

Last year, Verizon paid $4.4 billion to acquire AOL; it’s looking to pay $8.5 billion to buy the Internet portal’s stake in Yahoo Japan.

How much value can Yahoo! add

There are naturally some investors who are happy about the acquisition. However, there are some heavy hitters that support it. One of those is value investor Mario Gabelli who said on CNBC Friday said he supported a buyout of Yahoo!’s core Internet media and search business by Verizon.

Verizon has noted that the acquisition would further its strategy to build out its LTE wireless video and streaming video strategy. That could be combined with AOL’s ad technology platform, which was widely reported to be at the heart of Verizon’s bid.

Worries about add Yahoo!

Yahoo! has really had a hard time of it; despite hiring top Google executive Marissa Mayer. Since being hired in 2012, she has failed to gain positive results through several turnaround plans.

The writing about the future of the company was clearly on the wall last year. I recall a story in Bloomberg that noted Mayer wanted shareholders to wait at least another year for Yahoo! to explore and complete the spinoff of its Internet businesses as outlined Dec. 9, which was “simply unacceptable.”

Through the acquisition of Yahoo, I think Verizon is trying to gain more of a foothold in the online industry, which as you know is constantly changing. However, buying a failing business that seems to have fallen behind in the communications seems risky. And for Verizon, I anticipate struggles, because, afterall, it is a wireless carrier.

The fact that it already has a business (AOL) in its coffer’s that was ailing at the time it was purchased, means Verizon has two possibly troubled businesses.

Yahoo has pushed back the deadline for bids for the business until April 18, to give more companies to bid.

 

 

 

 

 

 




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March 2016 trading, investing, and dividends results


It is difficult to admit that you were wrong when you are the king of the world. But at some point the reality will catch up with you and you will be forced to admit you were wrong.

If your trading pattern looks like a roller coaster or constant losing it is time to stop thinking that you are hurt by the market and that the whole world is against you, Your Majesty.

This was my case.

After I effectively ruined my account from $21,000 down to $1,500 it was that “aha” moment to me. So last month I stopped my madness, stopped trading SPX market, closed the last losing trades and decided to move on.

I returned back to the strategy which worked and I did a good thing by doing so. My March 2016 is again a profitable month. Very profitable.


 


 
You may be interested in:

 
Trust the stock market? By Michael with Dividenden Sammler

 
A Weekly Raise By Dennis with Dennis McCain Investing

 
Outlook for April 2016 By R2R with Roadmap 2 Retire

 
5 Ways To Add Extra Space To Your Home By SB with One Cent at a Time

 


 

 

 · March 2016 trading results

In March I was trading options only using dividend growth stocks as underlying. It is a very profitable strategy but that doesn’t mean you can be careless and reckless in trading. The biggest challenge I faced in March was using my limited funds in check with my rules and not over trade.

It was very tempting to take trades when you have so much available margin sitting in your account.

But my rule is to use only 50% of my available buying power and keep the rest sitting in the account in case my positions get assigned. I use margin, not cash secured put trading so it is very important to check your buying power status often so you won’t get caught off guard. I do that check every day. Every evening I look at my available buying power and compare it to my positions to see if I am good to invest more or sit tight.


 


 
You may be interested in:

 
How to Protect Your Retirement Savings By Derek with Money Ahoy

 
April 2016 Stock Considerations By Keith with Div Hut

 
Trading options By ambertreeleaves with ambertreeleaves

 
Why You’re Not Picking Winning Trades and 5 Simple Steps to Fix It By Nial Fuller with Learn To Trade The Market

 


 

My March trading was very profitable and hopefully I back on track to make money. In March my account went up by nice 29.55%. I started the year with $1,518.73 and today, at the end of March I am up to $2,292.19. Nice 50% turn around and although my accounts are still down, I am slowly making it up from that hole I dug up for myself last year.

 

Here is my trading result for the month:

 

March 2016 options trading income: $364.00 (14.33%)
2016 portfolio Net-Liq: $2,292.19 (29.55%)
2016 portfolio Cash Value: $3,429.69 (58.28%)
2016 overall trading account result: -9.75%

 

Here are the results of my options trading:

Options Income
(Click to enlarge)

 
Here are the results of my options strategy:

Options Income
(Click to enlarge)

At first I started with cheaper stocks (although riskier than standard stocks) but later as my account grew I could start adding pricier stocks such as ABBV, PPL, LULU, etc.

The trades performed well, some I was able to close early for 50% profit, some are still on waiting for them to either close or expire.

I have a few trades which are in the money and I expect them to be assigned next month. The stocks which I expect to be assigned are ESV, TRGP and KMI. If it happens I will immediately start selling calls against those stocks.

 
Here are results of the individual trades:

 
PSEC

Options Income
(Click to enlarge)

 
ESV

Options Income
(Click to enlarge)

 
ABBV

Options Income
(Click to enlarge)

 
LULU

Options Income
(Click to enlarge)

 
KMI

Options Income
(Click to enlarge)

 
TRGP

Options Income
(Click to enlarge)

 
PPL

Options Income
(Click to enlarge)
 

If you like these trades and want to be informed when I place them and trade them in real time, you can join our closed Facebook Group. The group is a closed group and there are other traders posting their trade ideas too. We learn from each other, eventually ask questions, get answers, but most importantly you can see what we trade and how. You can follow those trades.

 
Here is the entire account value from the beginning of tracking it up to today:

TD Account Value
 

 

 


 
You may be interested in:

 
Top 10 Things You Must Know Before You Trade Options By Option Pundit with Option Pundit

 
Options Expiration – March 2016 By Alexander with My Trader’s Journal

 
20 Strong Dividend Growth Stocks – Rock Solid Ranking Free Report By Mike with DivGuy

 
Abandon Your Cushy Job To Expand Earning Potential By RBD with Retire Before Dad

 


 

 · March 2016 dividend investing results

Dividend investing is a steady growing and slow building process. But I have time. I mentioned many times on this blog why I am trading options and invest into dividend stocks. I trade options to create income now, but build my dividend stock portfolio for the future when I will not be able to trade anymore (due to age for example, or death, so my kids will benefit from the portfolio in case they won’t be able or knowledgeable to trade).

Unfortunately, my portfolio is weighted more towards energy stocks as I expected oil recovery to perform better then what we are seeing these days. A few of the stocks recently cut the dividend and I could feel that as my dividend income dropped. Even stocks like COP cut the dividends. But I am optimist here. I have 20 years in front of me. Unless these companies go belly up, I should be OK.

Recent cut hurting my income was by VNR so my income dropped again.

 

Options Income
(Click to enlarge)
 

My annual dividend income is down from $894.81 previous month to $887.98.

Dividend stocks added or removed from portfolio:

 

February 2016 dividend stock buys: none
February 2016 dividend stock sells: none

 

To purchase stocks I use trailing stock order strategy OTO trade order (one triggers other) and I described this strategy in my post about purchasing stocks in falling markets.

I also invest into dividend paying stocks using Motif investing which allows me to buy all 30 stocks I want in one purchase using fractional investing, similar to a mutual fund.

You can actually build your own mutual fund with Motif investing.

Here is my Motif Investing account you can review:
 
 

 

 
 

I continue reinvesting my dividends using DRIP program. I love how my holdings grow when reinvesting the dividends and when the stock prices are going lower. As I believe we are heading into a recession I will be able buying more shares for a lot cheaper.

 

Dividend stocks DRIP:

 

February 2016 DRIP: ConocoPhillips (COP)
Archer-Daniels-Midland Company (ADM)
American Capital Agency Corp. (AGNC)
Johnson & Johnson (JNJ)
Realty Income Corporation (O)
Vanguard Natural Resources, LLC (VNR)
Prospect Capital Corporation (PSEC)

 

Here are my ROTH IRA trading/investing results:

 

March 2016 dividend income: $70.46
March 2016 options income: $0.00
2016 portfolio value: $17,745.03 (6.30%)
2016 overall dividend account result: 17.21%

 

The account grew by 6.30% from last month, overall I am up 17.21%. Dividend income was also up from last month. All dividends were reinvested back to the companies which generated them.

 
Here is my dividend income:

ROTH IRA account value
 

 
Annual dividends since the beginning:

ROTH IRA account value
 

Here is the entire account value from the beginning of tracking it up to today:

ROTH IRA account value

 

 


 
You may be interested in:

 
Who’s Next: In Search of the Next Dividend Champions By JC with Passive Income Pursuit

 
Dividend Income for January and February 2016 By NMW with No More Waffles

 
Trending Stocks in the Blogging Community! By Adam with I Want to Retire Soon

 
How I Walked Away From A $200,000/Year “Dream Job” At 31 To Live My Life By FI Fighter with FI Fighter

 


 

Below is my dividend income review for the entire year:

Dividend Income
My ROTH IRA dividend income breakdown per month and per company.
 
 

 · All accounts

Besides trading and dividend accounts I also have 401k account, emergency savings account, etc., which I do not report in detail. You can review those accounts in my “All Accounts Value” table at the bottom of My Trades & Income page.

My accounts increased from previous month and are making 8.45% (up from previous month) for the year.

Remember, if you like trading options and want to have trade ideas for free, join my Facebook closed group and follow my put selling trade ideas in real time, comment, ask questions, and interact with other members. Other members of the group can also post their trades so you can learn from them too.

 
 

 
 

What do you think?

How about your investing or trading results?

Do you have any question? Need help to start trading or investing? Shoot me an email or let me know below in comments how I can help you.

 
 




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Posted by Jenna March 06, 2016
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Confessing My Money Mistakes


When Martin asked me to guest blog for the site, I had no idea what to write about. Having read quite a few personal finance blogs of his and on other sites, I said ‘I don’t have anything to say!’. What I failed to recognize at the time was that I do have something to say about money… that is, I don’t have a lot of it.

I’m coming to the end of my final year of an undergraduate Liberal Arts degree. I live in the UK and I am lucky enough to be eligible for a tuition fee loan, a maintenance loan, a maintenance grant and a university bursary. This might sound like I’ve got an income that is ‘livable’ but when you start to do the numbers, you wonder how many undergraduates manage in the financial situation they’re in. Spoiler alert – they don’t.

Many of my peers have exhausted themselves working up to forty-hour-weeks alongside their studies, many will do long commutes to save living costs of moving into the city, many live in sub-par accommodation because the rent is cheap… the point I’m trying to make is that there seems to be a mythological idea that student finance in the UK is ‘more than enough’.

Because my student finance wasn’t more than enough (let’s call the actual income a ballpark £7,500 a year) I have done just about every daft and dangerous thing with my personal finances.

Amongst these money mistakes are:

 

 · Getting a store card at eighteen

 

I walked into a clothes store having lived in hand-me-downs and raggedy old items for several months and they told me about this shiny way of purchasing clothes without actually exchanging any money at the time. It sounds so very appealing and you’re sure you’ll pay it all in full at the end of the month but that’s not quite the case. Store cards have hefty interest rates – many over 25%. Some entice you in with introductory offers and membership benefits but the truth is, store cards are quick and easy ways to accumulate nasty debt.

Cutting it up was the best thing I could have done!

 

 · Maxing out my overdraft early (because it was ‘interest-free’!)

 

When I opened my student bank account, I did look around to see who offered what. However having had virtually no financial education and not having sought it out myself, I didn’t really know what I was comparing the accounts for. This meant that I chose the one with the biggest interest-free overdraft because again – ‘free’ money.

I soon maxed the overdraft out because I thought there’d be no repercussions. As I’m approaching the end of the course, I am more than aware that interest rates will start to apply and that the balance is a pretty big figure at the moment. This is one of my priorities in terms of whittling it down once I have a regular monthly income from employment.

 

 · Frivolous spending ‘because I can’

 

I’m not talking a £90 pair of boots or a slap-up meal for me and my partner here. When you’ve got little disposable income, you often tend to ‘treat’ yourself more to the little things because you’re fed up about not being able to put your money towards something more substantial.

I’m sure many students can tell me about nights at the pub, weekend takeaways or that little purchase that you don’t need but you really wanted. While it’s important to recognize that this kind of behaviour isn’t helpful all the time, a budget and some carefully selected small treats will help you not to feel so downtrodden. There’s frugal and then there’s going without.

I had to make myself buy new socks the other day because I was being too frugal – if you need it, you need it!

 

 · Not learning about money and PF sooner

 

This is the killer. A lot of people complain that simple money management isn’t taught in schools but what people fail to realise is that the responsibility ultimately falls down to you. Your parents, friends, financial advisers, accountants, whoever can suggest how you should handle your finances but when it comes down to it, you’re the one in control of your spending, your saving and what you buy or invest in.

I’ve recently taken up this task and have found loads of great blogs about personal finance, investment, early retirement and peoples’ journeys to becoming debt-free. Whilst their content is inspiring for someone who may have a few money mistakes, it’s also hugely educational and worth reading about if you want to secure a better financial future for yourself.

Remember: no matter what your money mistakes, there are services and methods to help you get back on track. For help in the UK, contact the Stepchange debt charity or the Money Advice service.

 
 




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Posted by Martin March 02, 2016
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My Strategy update


Time to update my strategy. Again. I know it sounds weird but yes, I need to update my strategy, because the one I wanted to use showed up to be a dead end.

I was trading naked puts at some point against dividend stocks but later I turned into spreads. When analyzing why I found out that I started losing money as soon as I deviated from my strategy. The biggest issue was that I started trading stocks I didn’t want to own, so I started defending my trades, rolling them converting them, doing whatever I could to avoid assignment.

So I turned into spreads against SPX hoping that that would be the right strategy to make tons of money and not to worry about being assigned. Of course, SPX cannot be assigned, right?

I was losing money even faster and I couldn’t stop it.

It is time to go back to basics and start with what originally worked well, but this time stick to the plan.

I will be trading options against dividend stocks as of now only putting the SPX spreads aside for the time being.

 

 · Accounts

 

First, let’s review what I am doing and that I am not that crazy as you may think when reading about my gambling with options.
I use several account and my options trading was just a small part of the entire investing empire I have.

 
TD trading account
 

This account is reported on this blog This is my trading account I use primarily for trading options. I will not be buying and holding stocks in this account unless necessary as part of my trading strategy. This account’s purpose will be generating income to be invested in my other accounts and abridge my early retirement income before my 401k and ROTH kicks in.

 
401 k account
 

This account is not reported on this blog I invest in a 401k retirement account. As of today I contribute 7% of my income and every year when I receive an increase I increase my contribution by 1%. I also get 3% employer match. Choosing investment vehicles in this account is limited but I could choose funds which pay large distributions or dividends (as much as I could) which can be reinvested. I rebalance this account every 6 months.

 
ROTH IRA account
 

This account is reported on this blog This is my dividend growth investing account. I primarily invest into dividend growth stocks and reinvest dividends. I will also use options strategy but not as my primary goal.

 
Scottrade account
 

This account is not reported on this blog I opened this account because I loved the FRIP program. It is not my primary investing vehicle, but I really love to play with the FRIP. It is a play money account. I invest into dividend stocks and use FRIP to be buying new shares and new stocks. I am just curious how this account would build up overtime as I am not contributing any money to it. I just deposited $600 dollars starting money in it about two years ago and let’s see how this works out 20 years from now.

 
Motif investing account
 

This account is not reported on this blog This is yet another pet account to me. It is not a primary investing account but I loved the concept of creating my own mutual fund and let that fund play out on its own. It is an excellent idea utilizing fractional investing. There are many stocks I always wanted but couldn’t afford to buy them or didn’t want to spend $50 dollars only in a regular account (like ROTH) due to high commissions and fees. Motif allowed me to buy those stocks and now they are growing and generating income.

 

 · Put selling strategy

 

The strategy is very simple. I am selling naked puts against dividend paying stocks.

 
You must trade this strategy only against stocks you are willing to own.

1) Sell puts against dividend stocks as long as you get assigned.
2) If you get assigned, keep the stock and sell calls against the stock
3) Sell calls against the stock as long as you get assigned
4) While waiting for assignment collect dividends.

 
 
In my TD account when I get assigned to the dividend paying stock, that will be the only time I end up holding that stock in the trading account. I will only hold it as long as I get the stock called away from me when selling calls against that stock.

I will use this strategy in my ROTH IRA account. The only difference is that I will be selling calls only against shares acquired through the put selling strategy.

For example, if I hold 100 shares of an XYZ stock as my core holding and I sell a naked put against that stock and get assigned I will end up holding 200 shares of that stock.

All dividends from that stock will be automatically reinvested into my core holding (increasing my core holding) and I will be selling calls only against the acquired 100 shares, so if I get called away, I still keep my core holding (possibly increased by dividends reinvesting program).

 

 · Dividend Growth Strategy

 

I will search and invest into dividend growth stocks and reinvest dividends primarily in my ROTH IRA account. I will be buying these stocks and hold them forever (if possible).

To purchase new shares I will use an OTO strategy (contingency order or “one triggers other”) which trails the price of the stock. This technique allows me to buy the stock cheaper.

During my accumulation phase when my account is small and generating less than $1,000 dollars per month in dividends I will use DRIP program for reinvesting dividends.

After my account grows larger and I start earning more than $1,000 in dividends I will stop DRIP program and start using dividend for selective re-investing.

The reason for $1,000 limit is commissions and fees. Unless you can buy shares for free, it is better to buy with $1,000 or more. If you use less, it becomes expensive.

To choose a dividend stock I want to invest in I created a screener which selects the most undervalued stocks for me.

 

Of course, this screener is not necessarily a buy list I will be blindly investing into stocks which are listed as “buy”. I will use those stocks for further evaluation.

 

 · Money distribution

 

After I grow my accounts enough to start distributing money I will use the following rules for money withdrawal or reinvestment.

 
In my TD account:
 

For every $1,000 monthly income I withdraw $200 for my own use and spending (paying bills, debt, vacation, but also buying dividend stocks for example in Scottrade account, or saving to my ROTH IRA account). After I reach $10,000 monthly income, I will take out 50% for my own use. The rest will be left for taxes and account growth.
Still long way to go!

 
In my ROTH IRA:
 

After I reach $2,000 monthly income I invest 50% of that income into dividend growth stocks. The rest will be used to grow my options trading portion of the account.

 

 · Conclusion

 

I have a lot of work in front of me to reach my goals and I hope this strategy of put selling against dividend stocks will help me to reach those goals and I finally will use it right. If I will manage to make it right this time, I should soon recover my account, preserve my money, and grow them enough to reach a comfortable retirement.

Bear with me, follow me and see how good or bad I will be in my effort. If I am successful in this, you will have an example to follow.

 
 




TastyWorks

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February 2016 trading, investing, and dividends results


February 2016 is over. To me it marks a new milestone in my trading career. In my past posts I mentioned that if I will not be able to make profit trading options against SPX, I stop trading this strategy.

This time has arrived. I tried hard. I tried everything I could to make my trading profitable. But I wasn’t able to make it. So I am abandoning this strategy for the time being. In the future I may return to this strategy, but not until I will recover my account and will have enough money to trade this strategy.

My dividend investing continued performing well in February. I purchased new stocks and I can see results of DRIP investing. I also decided to apply my put selling trading in ROTH account too. But, again, no SPX trading.


 


 
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 · February 2016 trading results

For the time being I am abandoning SPX options trading strategy and going back to put selling strategy. In my post I wrote early this morning about opening a new trade against Ensco (ESV) that I was going back trading options against dividend paying stocks.

It is a win-win strategy and used to trade this strategy in the past. I multiplied my account using this strategy.

The reason why this strategy is great is that you are OK to get assigned to the stock if the put option gets in the money.

If that happens, you will buy a stock which will pay you dividends in the meantime while you continue selling calls.

With the SPX strategy, I couldn’t afford to get assigned because my account had not enough money for a cash settlement. So I needed to defend my trades. And defending my trades was the moment which was losing me money heavily.


 


 
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I started trading the put selling strategy at the end of February, so the results were not yet visible but I was able to recover majority of losses from SPX trading strategy. In the next coming months this strategy should start paying off.

However, the progress will be slow as of now. Because my account is small (since I destroyed it in the past), so I will not be able to trade this strategy monthly yet, but as the account will be growing I believe, I will be able to speed my trading up again.

 

Here is my trading result for the month:

 

February 2016 options trading income: -$72.00 (-0.62%)
2016 portfolio Net-Liq: $1,769.29 (16.50%)
2016 portfolio Cash Value: $2,166.79 (20.96%)
2016 overall trading account result: -30.34%

 

Here are the results of my options trading:

Options Income
(Click to enlarge)

 
Here are the results of my options strategy:

Options Income
(Click to enlarge)

As I mentioned above, I am not going to trade this strategy for time being. So this will be my last report on trading SPX spreads such as Iron Condors, or vertical spreads.

Instead, I will be posting my individual trades against dividend paying stocks.

Since my account is small, I am starting with cheap dividend stocks such as PSEC or ESV, but as my account continues going up, I will start trading more expensive and stable dividend stocks to generate income.

 
Here are the results of my PSEC put selling strategy:

The first stock I decided to start selling puts against was PSEC. It is a BDC company, it pays dividend monthly and I own this stock in my ROTH account. I do not mind buying more shares of this stock if I get assigned. I have owned this stock since 2010 and although it lost some value and many consider it a dead stock I believe this stock will perform great in the future.

With the put selling strategy I am lowering my cost basis so even if I get assigned to the stock at the current strikes, my real cost will be a lot lower because of premiums received.

My latest trade, as you can see below, had strike 7 dollars, I collected 2.60 premiums. Even if I get assigned at 7 dollars a share, my cost basis will only be 5.10 a share. I can immediately start selling 6 dollars calls (which will be deep in the money) and get out of the stock fairly quickly and still make another 0.90 or $90 dollars profit. And in the meantime I can collect dividends (it will be $8 dollars for 100 shares owned).

I think this is not a bad prospect, isn’t it?

 
Options Income
(Click to enlarge)
 

Here are the results of my ESV put selling strategy:
 

Similarly, in my trading account I can open a bit more trades than in my ROTH account thanks to margin trading. So I decided to add Ensco (ESV) put selling strategy. Ensco is involved in offshore drilling so it is heavily dependent on oil price. As of today, the stock may be risky, riskier than PSEC, but I am OK to take that risk and I am OK to own the stock should I get assigned.

However, I will not be as aggressive selling too many puts against this stock as with PSEC. I will be selling new puts against Ensco only when the old one expire or I get assigned (in which case I start selling calls instead).

 
Options Income
(Click to enlarge)
 

 
Here is the entire account value from the beginning of tracking it up to today:

TD Account Value
 

 

 


 
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 · February 2016 dividend investing results

My dividend investing continues being a boring and same routine month to month. Great strategy, however. Every month I collect my dividends, use DRIP to reinvest them into the stocks that generated them and if I happen to save more money ($1,000 limit for an individual trade) I purchase a new stock (or existing if it offers a great purchase opportunity.

I have big plans and dreams what stocks to add into my portfolio and I am slowly getting there. Well, very slowly right now. This is why I will be applying my put selling strategy in my ROTH account too to generate more income which I can reinvest.

There will be one difference to the put selling strategy. I will not be selling calls against my core holdings, only stocks I acquire thru put selling.

For example, I currently hold 100 shares of PSEC. I sold a new put contract against PSEC. If I get assigned, I will start selling calls only against the acquired 100 shares of PSEC and not the entire 200 shares holding. In the meantime I will be collecting dividends which will be automatically reinvested to increase my core holding. In case my calls get assigned, I will get rid of the new 100 shares only and not the entire core holdings.

 
Here are the results of my PSEC put selling strategy:
 

Options Income
(Click to enlarge)
 

This time I do not have to be worried about unwanted assignments or trade repairs which end up a huge loss. If I get assigned, I get to be buying a stock I want anyway.

 

Options Income
(Click to enlarge)
 

Dividend stocks added or removed from portfolio:

 

February 2016 dividend stock buys: 17 shares
Valero (VLO)
@ $57.84
February 2016 dividend stock sells: none

 

To purchase stocks I use trailing stock order strategy OTO trade order (one triggers other) and I described this strategy in my post about purchasing stocks in falling markets.

I also invest into dividend paying stocks using Motif investing which allows me to buy all 30 stocks I want in one purchase using fractional investing, similar to a mutual fund.

You can actually build your own mutual fund with Motif investing.

Here is my Motif Investing account you can review:
 
 

 

 
 

I continue reinvesting my dividends using DRIP program. I love how my holdings grow when reinvesting the dividends and when the stock prices are going lower. As I believe we are heading into a recession I will be able buying more shares for a lot cheaper.

 

Dividend stocks DRIP:

 

February 2016 DRIP: American Capital Agency Corp. (AGNC)
Master Card (MA)
Realty Income Corporation (O)
Prospect Capital Corporation (PSEC)
Vanguard Natural Resources, LLC (VNR)
Kinder Morgan (KMI)

 

Here are my ROTH IRA trading/investing results:

 

February 2016 dividend income: $57.42
February 2016 options income: $55.00
2016 portfolio value: $16,678.80 (8.95%)
2016 overall dividend account result: 10.26%

 

It is nice to see that my account jumped up 10% in February. But my dividend income got hit by another dividend cut, this time by ConocoPhillips (COP), so there is still a lot of work to do and buy better stocks which will not be cutting dividends. But that was the price I paid when playing the oil game investing into energy stocks hoping we would recover faster than this.

 
Here my dividend income:

ROTH IRA account value
 

Here is the entire account value from the beginning of tracking it up to today:

ROTH IRA account value

 

 


 
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Below is my dividend income review for the entire year:

Dividend Income
My ROTH IRA dividend income breakdown per month and per company.
 
 

 · All accounts

Besides trading and dividend accounts I also have 401k account, emergency savings account, etc., which I do not report in detail. You can review those accounts in my “All Accounts Value” table at the bottom of My Trades & Income page.

My accounts increased from previous month and are making 2.09% (up from previous month) for the year.

Remember, if you like trading options and want to have trade ideas for free, join my Facebook closed group and follow my put selling trade ideas in real time, comment, ask questions, and interact with other members. other members of the group can also post their trades so you can learn from them too.

 
 

 
 

What do you think?

How about your investing or trading results?
 
 




TastyWorks

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Posted by Martin February 29, 2016
3 Comments



 




Put selling against dividend paying stocks strategy: sold (ESV) April puts


Taking on the damage control from trading SPX spreads. I tried hard to get into SPX trading but I wasn’t able to make any profit.

I actually lost everything I ever made selling puts against dividend stocks.

I am not saying that I will never trade SPX again. Never say never. I might go back one day, but currently I am so under-capitalized for trading this instrument, that I cannot trade it successfully anymore.

You really need at least $50,000 dollars to trade spreads against SPX successfully. If you trade smaller account, you are undertaking bigger risk than necessary and most likely lose money.

Why? Because of your emotions. I could see my emotions getting me into a huge pressure over possibly losing $100 dollars! Yes, just $100 dollars loss became a burden to me.

Then I knew, that was my end of trading this instrument until I rebuild my account (again, yes I must admit I wiped out my account).

Is it possible to recover an account and grow it from $1,500 or so back to $50,000 dollars?

I believe it is possible. It will not happen overnight, but over the course of a few years yes, it is possible.

I have enough data to show my trading career looking for the right strategy which works for me:

 
Account Value Comments
 

As you can see, at first I was a bit successful trading whatever I could. Yet I lost money and had to start again. I found, learned, studied, and adopted put selling strategy. I increased my account from about $1,900 to $21,000 account in a year. I was so full of myself and I wanted more. I started trading (selling OTM) naked puts and naked calls at the same time (short strangles).

I overdone it (traded more than I could afford in case I got assigned) and the tide started turning against me.

Then I blamed the stocks (assignment risk, earnings risk, etc.) and continued trading SPX only.

But my strategy for trading spreads against SPX was bad (actually non-existent). You can see how quickly I lost my money.

The lesson is – stay with what works for you.

This is why I am returning back to trading options against dividend paying stocks.

 

 · Here is my strategy:

 

You must trade this strategy only against stocks you are willing to own.

1) Sell puts against dividend stocks as long as you get assigned.
2) If you get assigned, keep the stock and sell calls against the stock
3) Sell calls against the stock as long as you get assigned
4) While waiting for assignment collect dividends.

 

 · Put selling against Ensco (ESV)

 

For the reasons above I am selling puts against Ensco (ESV) which pays dividends. It is a risky stock. The company is involved in offshore contract drilling services to the oil and gas industry worldwide. Thus it is tied to oil price and if the oil stays this low, who knows what can happen. Yet, I am willing to take this risk and I am willing to own this stock should I get assigned.

In my previous post I wrote about selling puts against PSEC. The difference with ESV is that the volatility of this stock is a lot higher and I could afford to sell shorter term – April and collect nice premium 0.63 or $63 dollars.

If by April the option becomes worthless, I will be able to sell another put option. If the stock gets to 0.05 before expiration I will buy it back to release money and sell a new option.

If I get assigned (either early or at expiration) I will start selling calls (covered call strategy).

 
ESV
 

I now will be trading both stocks – PSEC and ESV as long as I grow my account enough to switch into more expensive and somewhat better, less risky, dividend stocks such as ABT, CO, O, ADM, VLO, etc.

As of now I need to stay with the cheap stocks and work it up. I did it once. I am positive I can do it again.

 

 · Don’t go anywhere! Subscribe!

 

Yes, stay with me and follow my trades to see how they work and how you can make money following the same strategy.

I created a Facebook group where I post my put selling strategy. Join me and see for yourself!

 
 




TastyWorks

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