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Thoughts on investing, options, and yields

I read a few posts on social media about dividend investing and criticism from investors. I decided to write my thoughts about investing, options, and yields and how they can help you to significantly boost your path to financial freedom.

In the past, I was not trading stocks, I was trading options only, and I was trading options using SPX as underlying. I was making money but I was also losing them as fast as I made them (sometimes faster).

 
Investing, options, and yields learning
Photo by Julia M Cameron from Pexels
 

But I learned a lesson on how to do it and build a portfolio for a living (well, at least, I hope I had).

My Original Investing Strategy

My strategy is to be buying high-quality dividend stocks (dividend aristocrats) and accumulate enough that I will have enough income from dividends no matter what a stock is doing. A great example was JNJ in the 2008 crisis. The stock lost 50% of its value yet they continued paying their dividends and even increased them. And there were many other stocks in the same category. So, my theory is, if I accumulate enough stocks in this category to pay me for example $90,000 a year when the market is high as well as when it loses 50% of its value and I still receive my dividends, then I really do not care what is going on out there.

Trading Options Help

On top of that, since I have substantial knowledge of trading options, I decided to trade options against these stocks using a wheel strategy. In my opinion, the wheel strategy is pretty much a win-win strategy (of course if done correctly). So I started selling puts against these stocks (later on I started trading strangles) and have enough cash or shares for assignments. I have peace of mind now not worrying about the stock volatility. I roll the options as much as possible up or down as needed and if I cannot roll for a credit I let it assign. And I have enough cash (or shares) to let the assignment go without ruining my account. And I reinvest all proceeds to buy more shares. I keep reinvesting the dividends and premiums. It is not a quick-rich scheme (as many people believe or hope for) but still substantial growth compared to just passive investing (like what you would normally do in your 401k account).

Strategy Results

Thanks to this strategy, I feel relaxed, I was able to navigate through the market 40% crash in March 2020 without losing anything, and in fact, I was buying more shares when they were on sale, my account is up 50% for 2021, and my options premiums average $3,000 a month in 2021.

And What’s Next?

I plan on accumulating until I have enough to have a sustainable income from dividends and options. I will accumulate a 1-year salary saved in a money market account as reserves and then I will be ready to “retire” and trade for a living. And if something bad happens, I will have a 1-year salary saved to eventually sustain any losses and find a job, but I do not expect that. I feel quite confident that with this strategy I will be able to navigate through good and bad. The goal is not to overdo the trading and not to over-extend the trades beyond cash security or shares coverage because if you trade more than what your cash or shares allow you, you are forced to close the positions due to margin calls and for a loss. Many times, a substantial loss. I learned that the hard way.

Dividend Investing Misconceptions

There are misconceptions and misunderstandings about the dividends I have seen in the past from people. Many investors do not want to buy dividend stocks and prefer growth stocks because they consider a 3% yield and sacrificing the stock growth not enough to bother to invest in these stocks.

Another claim is that in order to achieve let’s say $90,000 annual dividend income, an investor would have to accumulate a $2.5 million account at current yields, and that is not realistic in today’s world since it would take a person over 30 or more years to do.

Both claims are only partially valid. None take into account dividend growth.

Yield On Cost (YOC)

If you take into account the dividend growth, the time and amount needed to accumulate shrinks significantly. For example, my current portfolio has a current dividend yield of 3.52% and dividend growth of 5.91%. With these numbers, the future yield on cost will be:
 

  • 8.75% yield in 10 years shrinking the capital requirements to $1,028,571 portfolio value
  • 31.26% yield in 20 years shrinking the capital requirements to $287,907 portfolio value

 

and so on (This is when you are reinvesting all dividends and not adding new money. If you start adding more of the new money, it will grow even faster). And, I speed up this process with options income. That was always my dream and goal in investing and trading – generate enough income that can be invested to buy more shares that would generate even more income. At some point in the future, I should accumulate enough income to start paying my bills on top of the accumulating of more stocks.

But yes, you have to give your portfolio time to work it out. If you are looking for a faster way to get rich, then this probably is not for you.





One response to “Thoughts on investing, options, and yields”

  1. Odysseus says:

    Hi HelloSuckers!

    Thank you for sharing your thoughts. I have been reading you for a while and have learned a lot.

    I do agree with your approach and somehow I’m replicating it myself.

    Keep the good work. It will take time, but we’ll get there!

    ALl the best.

    Cheers!

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