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My inspiration in the last week #37

My inspiration in the last week #37

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

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Posted by Alka G. September 29, 2013


Comprehensive Tax Guide for Investors

Comprehensive Tax Guide for Investors

When tax planning season comes close, many individuals rush to tax experts to minimize their tax liabilities. Most of the times, it is observed that tax payers end up paying higher taxes than they are obliged to pay. Though lack of time to conduct proper tax planning is a reason, this can be also attributed to unawareness among tax payers about different rebates, allowances and deductions available under the Income Tax act. There is a strong need for tax payers to devote sufficient amount of time and efforts to aware of tax benefits which they can avail. Here we have listed some useful tax planning tips which will guide tax payers to lower their tax liabilities.

Determine whether you are Investor or Dealer

The first and foremost important step is to determine your status as an investor or dealer for tax purpose. Normally, capital gain or loss takes place when an investor sells his assets, while ordinary gains or losses occur when a dealer liquidates his assets. Advance planning can definitely help you to take proper decision on liquidation of your assets. The procedure to determine difference between an investor and dealer is completely subjective. So, you must analyze your facts and figures carefully to determine your position.

Acquire Adequate Knowledge

An important thing an individual has to understand is that individual taxes come in various forms. They can be classified into federal tax, state tax, local tax and income tax. Normally, all types of taxes are drawn from investments, wages, gifts, entitlements, inheritance and estate. So you have to understand your all deductions before starting with a tax filing procedure.

Timing Income and Expenses

Before end of each tax year, tax payers get an opportunity to save considerable amount of taxes by taking deduction and spending his money on some specific items. This idea helps you to analyze all tax saving possibilities by timing your income and expenses in proper manner. When you reach to the end of the tax year, you have an option of calculating your income in existing or next year. If you add your income in a year of lesser profits then you can minimize your taxes to significant extent.

Minimize Taxes by Pre-Paying or Stocking Up

You can augment your expenses by stocking up on inventory or by pre-paying for expenses. You can also utilize your entire credit line for purchases and stocking up on supplies. One best strategy will be to take deduction in a year when profits are higher. You can also consider pre-paying your mortgage or rent. If you are opting for this option then ensure that you are drawing down your principal besides additional interest.

Consider Capital Loss Carryovers

Investors can also utilize their capital loss carryover to compensate their capital gains in a specific year. Capital loss carryovers become highly valuable when tax payers enter next year. Any capital losses carried over to next year can help you to offset capital gains which are taxed at higher rates. So you may prefer to carryover your capital losses to later years rather than sticking to strategy where all capital losses will be absorbed in single year.

Keep your all Accounts well organized

Though it may appear bit trivial but keeping your accounts and paperwork in organized way before filing your taxes can create huge difference in your savings. Accounting firms also charge lesser amount of fees if you have kept your account and all necessary paperwork well maintained. A well organized account also makes sure that you are taking complete advantage of your all deductions.

Harvesting your Losses

You can also consider an option of tax-loss harvesting by selling securities in your portfolio at loss and considering all your losses to offset taxable capital gains. This technique helps you to exploit market volatility for your own benefit and share some part of your losses with government. As no one can control and predict the market volatility, you have to keep your eyes open throughout the year in order to utilize the benefit of a technique called ‘tax loss harvesting’.

Try to File Your Taxes Personally

Filing your taxes on your own is extremely cost effective as you don’t have to hire any professional consultant to do it on your behalf. However, it is one of the effective cost saving tips which is difficult to achieve. You can take help of software and research on all tax filing steps properly to pass through entire tax filing process smoothly. In initial time, it will be definitely challenging but ones you comprehend all the concepts properly, your task will be as easy as pie.


Taxes can create substantial influence on the net return of investors and careful asset management can definitely help you to reduce your tax burden up to significant extent. Every tax payer has his own circumstances and investors must consult to their tax consultant to determine the strategy which is best fit to their financial status and investment objective.

You can stick to a strategy which tells you to complete all the calculations before proceeding for the final tax filing process. You can take help of software program or download tax calculators from some reputed sources which will do all the tax estimations for you. After obtaining final figures, make sure to understand their proper interpretations. If this is extremely overwhelming for you then you can hire a tax expert who can do all necessary work for you.


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New Trade – Safeway Inc. (SWY) – put selling

New Trade - Safeway Inc. (SWY) - put selling

My previous put selling trade expired worthless netting me $220 income in premium. I still like this stock so I decided to open another naked put. But today I took a very conservative approach in selling new Safeway put.

Why? The reason is that at this particular moment I do not have enough cash to get assigned. Also the company stock price is extremely elevated and it may correct in any time and I do not want to be caught with pants down.

I was thinking about how to continue trading SWY since its options are quite expensive and I wanted to take advantage of it. So I decided to sell a very short time option and as far out of the money as possible. Once the option expires (hopefully worthless) I will rinse and repeat this process. I will start selling more expensive put options on SWY when I either save enough cash to cover a potential assignment or the stock price will not look too dangerous to sell put options against it.

The chart below shows the most recent stock price.


As you may see, the recent stock price sky rocketed. I didn’t have much time following the stock to keep up why it was happening, but I am looking at the price action from the technical perspective this time. The price gapped up and left the gap open. In some time, it will tend to close the gap, so the stock may drop.

I think that the short time option and deep OTM strike will protect me from this potential drop while still collecting an acceptable premium. The short horizontal line at $29 level indicates my strike price on this trade right at the bottom of the gap. If the stock goes lower to close the gap, I hope it will not go too low. If not I should survive the trend of closing the gap.

Trade detail

Today I opened a new trade of a naked put against SWY:

09/26/2013 09:32:56 Sold 1 SWY Oct 19 2013 29.0 Put @ 0.35

If everything goes well, this option should expire worthless. If the stock goes against me and an assignment will be imminent I will either roll the put over in a lower and longer time option or if having enough cash by then I will let the stock be assigned to me.

SWY trade history

Ultimately my goal with put selling against SWY would be to generate enough cash so I will be able to buy this stock with free money. As of today I made net $211.22 cash (enough to buy 6 shares of this stock).

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Trade exit – Taser Inc (TASR) covered call (13.47% profit); Safeway (SWY) put selling (9.57% profit)

Trade exit - Taser Inc (TASR) covered call (13.47% profit); Safeway (SWY) put selling (9.57% profit)

This expiration Friday I had two other option trades being closed. One was a covered call against Taser International and the other was a put selling against Safeway.


Taser International Inc. covered call assignment

This trade finished as per I wanted, although from the beginning it wasn’t that clear and easy. But I believed in this company and it actually exceeded my expectations. The final run up was impressive and made me feel that I should have gotten rid of the covered call option and keep the stock.

Well, as I try to emphasize: this wasn’t my plan.

In this post you can check my very original trade I opened in January this year.

On March 22, 2013 after this trade expired worthless I opened a new covered call trade (2nd trade adjustment) and this Friday on September 21, 2013 the covered call was assigned. That means that the stock was called away as per my original plan with nice 13.47% profit ($116.44) or 28.66% annualized return.

Safeway put selling

The next trade was put selling against Safeway. You can see the original trade opening comments here.

This put option expired worthless and I could keep my $220 premium making it a nice 9.57% profit or 18.44% annualized return.

I will be opening new trades on Safeway shortly after analyzing the stock. I still like the stock as a good candidate to own for dividend return so I will be selling puts against this stock as long as I get assigned or make enough cash to buy the stock for free.

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Trade exit – Realty Income (O) covered call expiration for 1.49% profit

Trade exit - Realty Income (O) covered call expiration for 1.49% profit

As I was worried last week how to deal with my covered call trade I opened on Realty Incomesee the trade here, this trade has changed into what I wanted in the first place. See the original trade here.

As I wrote in my previous reviews of the trade I mentioned that every investor or trader must have a plan before he places a trade. I tried to describe my plan in regards to this trade.

The plan is actually either a written or mental procedure of what you would do in each situation should that situation happen. With having this plan perfectly in place for each situation you won’t panic when that happens not knowing what to do.

I had a plan for a situation that the trade would go against me and that made me calm down. I actually was able to see some benefits of this trade going against me and you know what? I actually wanted this trade to go bad, because I liked the idea of taking the loss for tax purposes and significantly improve my cost basis of this stock.

This was a tight trade and tough one. Until the very last moment I didn’t know how the trade would end up. On Friday 10 minutes before 2 pm (MST) I was sitting in front of streaming chart having my finger on the “buy” button being ready to buy back the call. The reason why I decided not to let the covered call being assigned was that its price at the end of the day was only 15c (although the option was in-the money) so it was better to buy it back than let it being assigned. But literally a few minutes before close, the stock price dropped below strike and remained there making the option worthless.

By that I collected 100% gain or $61.21 for the flat trade (1.49% gain or 25.18% annualized return). Not bad if repeated every month, right?

So what will be next? Shall I open another trade?

I am planning on opening another covered call for October or November 2013, but right now I will be in a waiting mode. The reason that I do not want to jump in another covered call trade is that I do not know what the stock may do and I am receiving different signals.


Realty Income


From the chart above I can see the following signals:

  1. The Chaikin Money Flow index indicate money flowing out of the stock – investors are heavily selling. It is of course apparent from the price action chart – negative
  2. The price of the stock just bounced off of the long term (the yellow line) trend. The yellow trend line indicates more than 5 year trend, so this is a significant bounce – negative.
  3. As the price bounced it also created a new lower high confirming the downtrend with no signal for reversal – negative.
  4. And here comes something what makes me unsure of the trend continuation – the trade volume spiked way above average. That may actually indicate a capitulation or end of the trend (trend reversal). It may not happen right away, but will this trend continue until the October expiration?
  5. This price action is confirmed by Bollinger bands which are getting narrower. That typically means that the stock is ready for a significant price action. Unfortunately, the Bollinger Bands won’t tell you which direction that price action would be, whether up or down. And these are the two reasons why I decided to wait and take action later upon confirmation of either a trend continuation or reversal.

When I will be sure which direction the stock will go, I will either sell another put or covered call contract. Until then I am waiting for my trade.


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Posted by Alka G. September 22, 2013


How to Break your Bad Financial Habits

How to Break your Bad Financial Habits

Are your bad financial habits are holding you back from enjoying a debt free and financially independent life? Do you believe that you are in financial catastrophe from where it is impossible to come out? Your life is reflection of your current habits. In case, you have any bad financial habits then they may slow down your financials in dramatic way. So if you wish to bring your finances on track, you have to work on your financial habits more carefully. The real key is to make proper choices on regular basis and watch out small financial changes carefully. If you are aspiring to change your bad financial habits then here are some tips you must go through.

Identifying your Bad Habits

If you are not aware of things you are doing wrong then it is very difficult to get started. If you are suffering from serious financial issues then analyze your financial status carefully before moving forward. Ask yourself some important questions like – Are you overburdened with debt? Do you often face trouble while meeting your payments? Before you start working on any of the financial problems, you have to make sure that whether those problems really exist in your life.

Go Cash-Only

Credit cards may tempt you to overspend and you can get away from them if you don’t carry those with you all the time. If you are buried with excessive debt, try to leave all your credit cards at office or home. You can stick to cash purchase for all your transactions. In case, you want to buy something essential through credit card then avoid using them for any purchase which is less than $50.

Work on One Habit at a Time

You must be aware of the famous saying – Rome was not built in a single day, similarly bad financial habits can’t be changed overnight. If you try to work on all the problems at once then there are higher chances of failure. So work on individual habits on consistent and steady basis. You can design short term and long term goals for yourself and work on them one by one. Once you achieve success on any one habit, it will give you confidence to tackle with others. 

Don’t be Over Conservative with Your Money

Being watchful with your money is always a nice thing as this habit can make you a good financial planner. But if you remain over conservative with your money then you may miss an opportunity to appreciate your money. This is one of the bad financial habits, which is worth changing. At an initial level, you can talk with your financial advisor on what investment avenues you should choose in order to earn stable and safe returns on your invested money.

Avoid Switching Credit Cards Constantly

It is always better to opt for credit cards which offer best deal but switching credit cards on regular basis may create negative influence on your credit score. In case, you are planning to consolidate debt from multiple credit cards but not cancelling those accounts then you may end up digging a bigger hole in your financials.

Avoid Impulse Shopping

Most of the times, you may get trapped in impulse shopping unexpectedly in order to avail the recent offers available in the market. Consider shopping as an alcohol and it must be handled responsibly or else may become addictive. Try to make shopping as a plan activity by listing out items you want to buy within definite budget. Take some more time to analyze whether you really require that particular item before finalizing the deal.

Don’t’ Let Emotions to Influence Your Finances

Most of the individuals have a habit of spending emotionally to revive their mood. They spend excessive amount of money on unessential items to raise their self esteem. These sentiments can impact your financials badly and they can mislead you. So always make your spending decision on the basis of your current financial status and budget. If you are still purchasing things without any financial budget then it’s a time to sit down and figure out your one.

Don’t Spend Everything You Have

Don’t consider spending your savings or any investment for anything less than a risk free and profitable venture. Don’t spend your emergency savings stupidly as this may create the feeling of desperation which is commonly found among individuals when they don’t have any money.  The best strategy is not to buy anything which takes over 50 percent of your cash.

Resolve all Legal Matters on Timely Basis

Don’t ignore or postpone any legal matters and try to resolve them within stipulated time to avoid future trouble. You can deal with these matters on personal level or forward it to your legal advisor on time. Responding to such matters after deadline can cost you significant amount of penalties and unnecessary charges. The same principal also applies to credit and debit cards as these involve higher interest rate component and default penalties.

Conclusion –

It is commonly observed fact that individuals who postpone their bills and utilize excessive credit end up paying more. Don’t get trapped in such a vicious circle which will eat your existing money resources and make you financially dependent. Most of the financial habits are quite challenging to quit but with persistency and discipline you can overcome those over the time. Even though these habits are extremely hard to break and demand consistent efforts, you will definitely receive substantial amount of payoff after executing them in your life.

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Tomorrow is expiration Friday, will my Realty Income (O) covered call expire worthless or not?

Tomorrow is expiration Friday, will my Realty Income (O) covered call expire worthless or not?

I have a few option trades expiring tomorrow and they are all in good standing and most likely expire worthless.

I also have Realty Income covered call trade open set to either expire worthless or execute. What will happen? I do not know. I do not know whether the contract expires worthless or will be executed. If I knew I would be predicting the future. Unfortunately I do not know how to predict the future.

I only can react to what is happening and what will happen tomorrow.

When I was opening this trade last month, see details of this covered call here, I knew the trade was very tight.

I was very close to the strike price and the stock’s fall was slowing down making it a bottom or consolidation. The chance that the stock will break up above the strike price of $40 a share was quite high.

Realty Income Chart

For the whole month the stock was attacking this level, but mostly stayed below. Except yesterday when the market was pushed up by tapering halt by FED. The stock shot well above the strike.

Although it is now correcting back down, it is not certain that the stock falls down below 40 dollars and the execution is very likely.

If you follow my blog, you know that I sell covered calls against stocks which I do not mind being called away. Well, Realty Income is not that stock.

Realty Income is one of my precious stocks, usually called as core portfolio. I was buying this stock for dividend income. And it looks like that tomorrow I will be forced to sell 100 shares of my Realty Income stack.

What can I do to deal with this situation?

It is a very important part of investing or trading. You have to have a plan for every possible situation to be able to repair or deal with the trade.

Based on the current price action I have the following options to do:

  1. Roll the covered call away in time.
  2. Roll the covered call away and up
  3. Let the covered call be exercised


Roll the covered call away in time

This strategy is easy and it is exactly what it says. I would buy the September covered call back and sell the same strike covered call with expiration in October.

With this step I would buy the stock more time. But the strike price would stay the same – 40 dollars. Will the stock stays bellow 40 dollars in October? Maybe. But I do not know it and when looking at the chart I am not convinced about the direction. I do not see any substantial pressure neither up or down.

With this outlook I am not much confident extending this trade, although it most likely will be a credit trade and I will make more money. But the risk if too big for me.

The stock may continue up and by October it may end up at 45 dollars a share and in that situation it will be a lot worse fixing the trade. So I am not in favor of this approach.

Roll the covered call away and up

This fix would mean that I would buy the existing September 40 strike call back and sell a new 45 strike in May 2014 expiration call. I will move my strike higher and further in time. The problem with this trade is, that although I buy more time and room for the stock to go, it will be a debit trade. I will pay for this trade almost everything the original trade has made. And yet I will extend my uncertainty. So what’s the point? I do not see too many benefits yet.

Thus this trade is also unlikely for me to take to fix this trade.

Let the covered call be exercised

Surprisingly this is an option I currently favor to take. If you just read above that I do not like my stock to be called away, you may be asking why I am OK to let this trade be exercised?

Here is my point of view.

When exercising a covered call option like this one I have, you can chose which shares you deliver to the buyer on the other side of the contract. If you take a look at My Trades & Income chart you can see that I bought some of my Realty Income shares for $50.24 a share! today it looks crazy, but back then it looked like a great opportunity.

I can take those shares and sell them to the buyer for 40 dollars a share. Sure I will take a loss, but this gives me an opportunity to buy my shares back on the following Monday for a lot cheaper price!

Here is my expectation:

I will sell 100 shares which I bought for $45 – $50 a share and sell them for 40 a share tomorrow.

I will immediately buy 100 shares of Realty Income on Monday for $40.50 – $41 a share and replace my original shares.

Although this is mostly administrative procedure, it will significantly improve my cost basis of my overall holdings. I will take a loss which I apply against taxes (which is already accounted for in my account value anyway), lose very little on transaction fees, and end up with the same amount of shares for lower cost.

I wouldn’t be able to do this step if the covered call was too ITM, but being ATM will not cost me almost anything and improve my overall holdings.


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Trade adjustment – Kinder Morgan Partnership (KMP) addition #3

Trade adjustment – Kinder Morgan Partnership (KMP) addition #3

I hoped the price of Kinder Morgan Partnership will continue sliding down due to irrational selling triggered by a report issued by an analyst Kevin Kaiser of a research firm Hedgeye as I wrote in my yesterday’s post.

Crazy reports like this may move stocks down and in the case of Kinder Morgan which was paying consistently its distributions since 1992 and regularly increasing it for 16 years it is a blessing when the stock like this is beaten down. And it is a great buying opportunity.

As my friend blogger CI said in his comment below my yesterday’s post:

“In my eyes all the hoopla is just about scaring people, […]. I bet that 6 months from now nobody will remember this.”

I agree and I am buying more shares in situations like this.

I hoped the price would go lower, but today’s another crazy move of the market (based on bad economy view from FED) my contingency order has triggered the buy order and I bought 12 new shares.

Trade details

Today the order fired and I bought 11 shares of KMP:

09/18/2013 14:00:49 Bought 12 KMP @ 79.62

Stock details

Total shares held as of today: 45
Estimated annual dividend: $237.60
Consecutive Dividend Increase: 16 years
Dividend yield today: 6.75%
Dividend 5yr Growth: 7.43%
Dividend paid since: 1992


This trade increases my overall dividend income in TD Ameritrade account to $1,014.98 annually getting me closer to my 2013 goal of reaching $100 monthly dividend income.

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Stop buying new investments, start saving a lot. A bubble is about to pop.

FEDI had to say it although I do not know what is going to happen, but today’s move on the market was very surprising to me.

It wasn’t the “surprising” halt on tapering efforts from the FED, but the Wall Street reaction what shocked me. Are we really dealing with a bunch of idiots on the market these days? As long as I watch what’s going on as surprised and disgusted I am.

It looks like the investors are too fixed on FED’s moves that they are already blindfolded to see the reality.

So what has happened? Ben told us this early afternoon that the US economy stinks, it is bad, it doesn’t perform as expected. Therefore FED decided to keep its QE3 stimulus intact and continue buying bonds spending $85 billion of printed money.

And the market participants started buying everything what was available and pushed S&P 500 and other markets to new record highs.

Later a press conference was held and it moved the markets even higher.

Although I believe this frenzy run-up will correct tomorrow, the market may continue on its pumped march upwards. I am however skeptical and think these levels are artificial and unsustainable that I am going to take some steps to slow my buying and continue more in saving cash.

If this bubble busts, I will have a lot of cash available to buy all the stocks the same investors will start dumping when the music stops.


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Kinder Morgan suffers a large price drop, should you be worried?

Kinder Morgan suffers a large price drop, should you be worried?

If you are watching your Kinder Morgan partnership stock carefully (and that is the same with KMI or KMR) you may have noticed that KMP suffered a large drop recently. KMI even dropped almost 6% last week.

Should you be worried and dump the stocks?

No, that would be a bad move. First answer yourself a single question: Why have you invested in KMP, KMI or KMR at the first place? Are those reasons still valid?

I invested because of the dividend income I wanted from the stock (to be exact I wanted the nice distribution KMP pays to its share holders). Is that reason still valid? Yes it is. The rate even raised up to 6.60% as of today’s writing! I actually want this stock now more than before!

So why the stock got hit and the price is falling?

The reason is a report issued on September 10 by an analyst Kevin Kaiser of a research firm Hedgeye who was arguing that KMI (the general partner of KMP) is spending less on its capex (capital expenditure) and thus inflating its distributable cash flow. In his opinion that makes the company a house of cards and avoidable for investing.

I am not buying this at all. I have never read a bigger nonsense when comparing what other MLPs do. If you want to read more about the report and how other investors react to it go to an article: “It Isn’t Kinder Morgan That’s a House of Cards” by Jim Mueller at Motley Fool or “Kinder Morgan Energy Partners LP: Not A House Of Cards” by Roger S. Conrad at Seeking Alpha.

I believe the reaction of investors to the report is another proof how irrational markets are (actually people investing there) and how savvy investors can make money taking advantage of it. This is a type of news which create a great opportunity for any dividend investor.

I will be placing my contingency order shortly to buy more shares. That means that I will place a trailing order, which will trail the stock price as it goes down, and execute only when the price reverses into upward.

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