WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
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Posted by Martin July 21, 2020
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So many sudden gurus


Account Net-Liq: $5,259.26
SPX value: 3,257.30

It is astonishing to see how many sudden investing and trading gurus popped out on social media, mainly on Youtube. It reminds me of my enthusiasm in 2008 when I decided to post about the market and my newly achieved knowledge of the market which no one ever knew about. I must have looked stupid to the people of “have” trying to tell them what stocks to invest to because I was the only one there who knew.

How laughable I must have looked like to them! Well, I guess, exactly as these new brewed gurus look laughable to me today. When I browse through my Youtube feed, I see so many of them providing analysis, predictions, forecasts, crash predictions… all a joke of newly bred gurus. But, as an old adage goes, “if suddenly a plumber becomes a market wizard, it is time to bail out”.

Are we seeing this today?

And many of the analysis, predictions, news, forecasts… all these are just an empty blabbing. I can’t watch many of them beyond the first few minutes.




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Posted by Martin July 21, 2020
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The market is ripping it off rallying again


Account Net-Liq: $5,259.26
SPX value: 3,257.30

Another day with large gains and I do not see where do they come from. Another frustrating day where the market goes up 1%+ or down 1%+ and sometimes more. Where are the days where the market went up and down 0.30% and we considered it a huge gain?
I had to roll my SPX calls up again, but it was costly this time. It needed about $0.95 debit to roll it higher. So I decided to roll the put side higher too. Not much confident about it because if this market tanks again I have lost all the cushion built up recently. But, on the other hand, rolling everything down is favorable, at least it used to be. Only 10 days for this SPX trade and I may have saved it… The question, of course, is at what cost?
Other trades are doing well so far. I like my IWM performance, making nice profits already. XLE trade seems to be working well too. I hope, these trades will keep perform and make cash needed to grow the account.

I really wish all this picks up and I build my passive income really fast.

SPX 2020




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Posted by Martin July 20, 2020
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The market rallies again


Account Net-Liq: $$5,340.51
SPX value: 3,251.57

It is becoming quite frustrating that the market rallies again. It is weird. Everybody is pessimistic, everybody says that we are in a recession, we have new COVID-19 spikes and everybody is worried, yet the market rallies hard?!?

Did everyone forget about the COVID? How come we sold off hard in March during the first outbreaks of this (in my opinion) fake virus bogus and today, when everyone is, AGAIN, talking about shitting down the economy AGAIN, and the market doesn’t bother about it anymore? Why no one is scared today?

I opened a few new trades using XLE butterfly and had to roll my SPX call spread higher again to keep it away from this raging bull no one believes in. It is totally outstanding that it completely defies anything I keep hearing and reading out there. Well, I guess, the best approach is to take it as it is and ignore all the naysayers.

Last night I watched Linda Raschke’s video on Stock charts. I didn’t finish it as it was too late, but she pretty much predicted that this rally could continue just because of this pessimism, too much money out there sitting on the side. She pointed out M1 money supply spike but the money has not been used to invest so the supply is sitting somewhere… not in the market. This supply will be used to pour more money into the fire one day propping this market higher. I agree with this logic, though.

It is really outstanding how strong rally SPX shows. But it seems, this is driven by only a few tech stocks as almost all my other holdings are losing big. IWM is also losing (-0.33% down as of now). Everything is red but SPY (SPX).

It is tech stocks propelling SPX up. It is crazy:

SPX 2020

As you can see, IWM is in poor conditions compared to SPX. Most of the stocks are red:

SPX 2020

Here is a picture of today’s rally. I had to roll my calls up again and it seems I will have to roll them up again tomorrow:

SPX 2020




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Posted by Martin July 19, 2020
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New week expectations


Account Net-Liq: $5,202.02
SPX value: 3,224.73

Expecting the new week and hope the market will be favorable to my trades. I hope to repair my SPX trade and make money on the existing open trades.

I also finished reading Lifecycle Investing. I think it is a good book and worth re-reading a few more times. It encourages safe leverage and I, for sure, want to use leverage to increase my income and portfolio growth.

I will keep accumulating cash to be able to keep purchasing LEAPS against indexes such as SPY and IWM and selling covered calls against those LEAPS and keep buying shares of high dividend quality aristocrats. I want to accumulate enough to start selling covered calls against those shares too.




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Posted by Martin July 18, 2020
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ROTH strategy success


Account Net-Liq: $19,047.39
SPX value: 3,224.73

I have been trading the strategy I was talking about in my previous entries in my diary in my ROTH account for some time now. I have been accumulating shares of HP until I reached 100 shares, later on, I kept accumulating PPL, and now I am accumulating AT&T (T) shares. I keep selling covered calls and using the proceeds to buy more shares. My HP covered call trade is stalled now a bit. I had to sell CCs below my purchase price and at some point, oil companies started rallying hard and I had to roll my covered calls higher to avoid assignment which would cause selling my shares way below my average cost basis. Not happy but it is what it is. Now the CC is in good shape but my expiration is way away in December 2020. Not much happy either but there is no rush. It would not be good pushing these trades and force them. I am in December, so I have to wait. Period.
My PPL trades are in good shape. I could sell CCs above my purchase price, so I do not have to worry about rolling that much. If the stock rallies high and I can’t roll or would have to roll way away in time, I’d rather sell the shares for a profit and start selling puts to buy back in. But PPL is a slow lazy stock. It doesn’t rally that much and that fast, so, will see.

However, it seems, this account is doing extremely well under this strategy. Yes, there are drawdowns, but overall, the account prospers. It is not a quick-rich scheme, but I am happy with the results.




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Posted by Martin July 18, 2020
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Goal for 2020


Account Net-Liq: $5,202.02
SPX value: 3,224.73

When I realized that I would not be a good trader and needed to take a different approach, I decided to set the following goal for 2020:

1) invest in high-quality dividend stocks (aristocrats) and reach 100 of those stocks
2) collect dividends on those high-quality stocks
3) sell covered calls on those stocks
4) if assigned, start selling cash-secured puts to buy back the shares

Here are the shares I plan to accumulate in 2020:

Aristocrats 2020

5) buy LEAPS against indexes such as SPY and IWM
6) sell covered calls against those LEAPS
7) use covered calls proceeds to raise BP to min $500 and maintain that level
8) use any proceeds above $500 BP to repair bad SPX trades (see below)
9) after repairs, use proceeds to buy more dividend-paying stocks (aristocrats).

Here is the goal for 2020 in individual steps:

Goal 2020




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Posted by Martin July 18, 2020
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Cash Deposit and purchase of IWM LEAPS


Account Net-Liq: $5,202.02
SPX value: 3,224.73

I decided to write a diary about trading and building my wealth. And keep it private for now. And I want to force myself to write every day if the conditions allow. I want to write about my trading and my feelings during the market days or weeks, make sure I record what I was thinking about what trades I took and why.

Finally, two or three days ago I could save $2,200 BP, pretty much by refinancing my house. I deposited this cash to my trading account and immediately before I could waste the money, I bought 3 years IWM LEAPS and sold calls to collect cash on this trade.

I kept reading (listening to an audiobook) Lifecycle Investing and realizing how much underfunded and underinvested I am for retirement. My only chance is dividend income and leverage as described in the book. That is the reason for taking this trade to expose me to the market more than ever to make up the lost years. I lost so much money, pretty much got myself nowhere and feel frustration and desperation. But I am positive!

I still believe, that by applying conservative investing/trading strategy, I still can end up well ahead of the market and my needs to retire comfortably.

I will strictly be buying high yield good quality dividend shares, collect dividends, and sell options (covered calls) against those stocks.
I will also be buying LEAPS against IWM, SPY, and possibly other indexes and sell covered calls against those LEAPS. However, it is quite frustrating lately with the market behavior and its relentless run-up which endangers any call selling strategy. I just hope I will be able to manage the strategy well.

Here is a table of the stocks I want to be accumulating:

Aristocrats 2020

Here is today’s market:

SPX 2020 0718




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Posted by Martin July 12, 2020
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Chasing Money


Building wealth and passive income is a long term journey. But it can be shortened. Not by reckless trading (I tried and failed), but by buying assets which grow fast and pay growing income which can be reinvested and snowballed to ever growing larger sums of money.
 

Dividend investing
 

This is a reason why we like dividend investing. If we pick good quality stocks, we will get paid for holding the stock no matter what happens in the market. During Covid-19 mess many companies lost 50% of their value. For example, Altria (MO) was trading for $80 – $90 a share. Today? Today, it trades for $40 a share. Is it a problem?

Not, if we invest for income. If we invest for income, the goal is to hold our stocks forever and never sell (unless the company no longer meets the original narrative why we bought it in the first place).

So, we hold the stock through the thin and thick times and we get paid an ever growing income. Ask Warren Buffett.

To illustrate this point even further, let’s look at Altria company again. As of today, it pays 0.84 per share per quarter. If we own 100 shares of this stock, we will get paid $84 every three months. We got paid $84 when the stock was trading at $80 a share and we got paid $84 when the stock dropped to $40 a share. The dividend was flowing into our account regardless to the stock price.
 

Monetizing our positions
 

Dividend income is not the only stream of income we want. We want more. We want to fast track our income. Double it. Or even triple it if possible. How?

Fortunately, today’s financial markets offer us a cheap and easy access to other instruments which would allow us to create additional stream of income. Unlike dividends, which could be considered a passive income, this stream is not. It will require us to work for it. But personally, I would like to work this type of work than working for someone else. What income is it? Options. We are selling options around our positions and generate additional income.

Our goal is to accumulate 100 shares of a stock we like to own as soon as possible and once we accumulate, we start selling covered calls. For example, if we start selling covered calls using Altria (MO) as underlying stock, we can collect additional, approximate, $30 a month. That is additional $90 every three months and $174 if we add dividends. It may not sound like much, but when reinvested and repeated for the next 10 years, it will grow to staggering $650 monthly income and 195% yield on the original cost. And today’s holding value of $4,680 will grow to $32,762.40 value (a nice 71.91% annual growth).
 

High yield dividend aristocrats
 

To speed our growth rate, we will be accumulating dividend stocks which are on a dividend aristocrats list. These are stocks with proven dividend track record. Many paid and increased dividends for more than 50 years. And many pay relatively high dividend and have enough income or earnings to afford it.

Below are stocks we consider worth buying (note, it is not our recommendation to you, we do not know your objectives and goals, and you must make your own homework and decision before you invest). These are the stocks we will be accumulating in our accounts to reach 100 shares as of July 2020:
 

MO
XOM
T
PBCT
MCY
NNN
CVX
IBM
O
 

Dividend aristocrats
 




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Posted by Martin May 26, 2020
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“The stock market fantasy will end…”


Will it?

This is what I keep seeing lately in media and opinions of all sorts of people. While it is true that the market seems detached from reality, the problem is elsewhere. One day, we may see another leg down (or maybe not) but those who bet for it to happen soon may become broke long before it actually happens… if it happens.

 
Optimism
 

Here are the reasons why I disagree with all the gloom and doom predictors:
 

1) Faith
Today, most of the market trades on faith. Like it or not but it is a reality. It is the same as with dollar. Since I have ever been aware of a currency named “the US dollar” for the first time in my life, I kept people predicting its demise, collapse, and being substituted by other, more reliable currency, such as Russian ruble, German Deutche mark (when it existed), Euro, or Chinese yuan… Fast forward some 50 years, and we still have the US dollar around and it still is a world reserve currency no matter what the US government does and have been doing to it for years, and no matter how irrational you may think FED and Treasury is. People still believe in dollar despite gloom and doom predictors foreseeing its inevitable bankruptcy… The stock market is same. As long as people/investors believe what FED and other players do in this market/economy, it will not crash just because you think it is irrational.
 

2) FED
And yes, FED plays a very significant role in all this. Powell has been signalling all day long that they will do anything and everything needed to keep the music playing. They are literally converting the stock market into the US T-bills… No matter what you and other players do in the market and to the economy, you are guaranteed a bailout. The FED will not let your investment go under. Yes, some individual stocks may go down, but the overall market will be let floating with as much hot air as possible. You do not like it? Well, me neither. I think it distorts the very prime function of the market but, hey, if it makes me money with less risk, I will go for it with absolutely no objections. And if FED makes me believe they will protect my investment, great. I will deploy money fullhandedly… And millions of other investors, traders, hedge funds, and big houses believe it too. We are back to the “faith” thing.
 

3) Comparing today’s market with today’s economy
It is a known phenomenon about the market that it is “predicting the future of economy” up to 6 months ahead. It is not a true prediction of the economy as no one, even the market itself, can predict the future. This means that in fact, the market is looking at the future economic expectation of where the economy might be 6 months from now. Investors, mainly those predicting the next crash seem to be forgetting this. If you think that the market is irrational because the “economy is in a very bad shape, we are in recession, we are going to crash, we will have a huge unemployment…” and who knows what else and so the market is manipulated and will crash soon, then you too fell to this same trap of comparing two incomparable time frames. Today’s market no longer cares. All this doom and gloom you are seeing coming – 25% unemployment, 34% GDP loss, crashing EPS… all that was already priced in the market back in March when we lost almost 40% of the market value. The market no longer cares about this. What it cares about is what the future might look like. We are reopening our economies – great, great news!! Companies will be hiring again, consumers will be spending again, recovery will be faster than we expected… All the gloomy economy suddenly is not that gloomy. Then add to it, that the unemployment is not 25% but only about 14% and some… Another great news! Recent earnings were not down more than 25% as expected and GDP didn’t drop by 35% as predicted. Another awesome news! Is it bad? Yes, it is, but not as bad as we thought. Add vaccine on top of it and music will go on.
 

Will we crash again?
Maybe. But not before the optimism of better bad than worst future fades away and market realizes (again), that all the great and bright future economic expectations were too optimistic. Then we will correct that optimism again. Remember, the market doesn’t know where the economy will be. It only expect it to be at some point in the future. If that expectation was wrong (too optimistic) we will correct. If it was still too conservative we will, shoot even higher. It is all perception. And fighting that perception can be costly. So far, optimism rages the Wall Street and it may take years before it goes away.
 




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Posted by Martin May 23, 2020
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How to boost your investing income and portfolio size


The ideas presented here are not new but they are just less known. There is a great paradox when investing in the stock market for the purpose of creating a personal wealth and financial independence. Advisors and gurus tell us that we must invest a lot of money and rather very early in your lifes to retire comfortably.

So, how much money have you been told to save of the course of your lifespan? Susan Orman not so long ago advocated that in order to retire comfortable, people will need $5 million or even $10 million saved in their retirement accounts! That is ridiculous!

And the paradox?

When we are young and plenty of time to invest and build our wealth, we do not have enough money to invest.

When we have enough money to invest as we progressed in our professional careers, we do not have enough time for the market to grow our wealth.

Due to this paradox, we only capture a small potential of the market wealth. We save less and give the market less time to grow.

Fortunately, there is a way to change it!

Well, at least, improve it. You can adopt leverage to your portfolio and invest more money when you have little money, diversify, and leverage your portfolio over time.

Ian Ayres and Barry Nalebuff wrote an excellent book about this less known strategy: Lifecycle Investing. It is an excellent approach to safely leverage your investments in your 20’s without endangering your savings. I myself am implementing these strategies in my own portfolios.

The greatest strategy I use and consider an excellent idea (derived from the book) is to use LEAPS calls to capture the market move with less money. Let’s say, if you buy 100 shares of SPY index (typically advocated by Warren Buffett), you will need $29,544 at the current market price. How many starters do have this amount of money? I didn’t have it. I still do not have that much.

Even if you decide to use margin it will cost you $14,779 to buy 100 shares of SPY. Still beyond reach of many 20 years old today. And given that many Americans do not have enough saved (average is $60,000 in the retirement accounts) it is beyond reach for many to pust that much money into SPY.

If however, you buy 3 years LEAPS call contract, it will only cost you $4,210 (when you buy 290 strike in the money call). So, you control 100 shares of SPY for only $4,210 !! A brilliant idea! And when do you think the market will be in three years? A high chance is, it will be up. Significantly up! If the market (SPY) goes up to $400, you will make $6,790 on your $4,210 investment in three years! A nice 161% ROI compared to only 23% if you bought shares out right.

But what if the market tanks and it takes for more than 3 years to recover in order to make any money on your calls? What if the calls end out of the money and lose all the value?

Then you implement covered calls strategy against those LEAPS you own. You keep selling monthly (or even shorter) covered calls to lower your cost basis. If done correctly, before the end of the LEAPS you will own them for free. And then you can decide to let them go and expire them or if there is any value (mostly there will be a value), close them for additional profit or roll them up and into the next 3 years term…




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