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Tuesday, June 22, 2010
Monday, June 14, 2010
Saturday, March 27, 2010
The Horse is Offically Beaten
Is anyone else getting tired of news and commentary on the health care issue? I know I am. Of course I am pretty guilty of participation having commented and written virtual books about it on facebook. But I am even getting tired of reading my own drivel about it.
I want to make money. While Obamacare certainly affects each of us and our investments, we need to focus on how to profit from it instead of griping about its existence. I have personally spent the past week griping about it, but now that is over, I am searching for ways to profit.
I wish there were something to offer for you right now, but I am still in investigation mode. Pfizer looks to be a good bet as it is a huge company with a market leading position trading at a low valuation. But with the market volatility so low right now, my favorite strategy, selling naked puts on stocks I want to buy anyway, is not very profitable.
So for now, I am going to sit on my hands and enjoy the arrival of Spring here in Estonia.
I want to make money. While Obamacare certainly affects each of us and our investments, we need to focus on how to profit from it instead of griping about its existence. I have personally spent the past week griping about it, but now that is over, I am searching for ways to profit.
I wish there were something to offer for you right now, but I am still in investigation mode. Pfizer looks to be a good bet as it is a huge company with a market leading position trading at a low valuation. But with the market volatility so low right now, my favorite strategy, selling naked puts on stocks I want to buy anyway, is not very profitable.
So for now, I am going to sit on my hands and enjoy the arrival of Spring here in Estonia.
Thursday, March 18, 2010
The market is just a bit overheated for my taste
I would encourage anyone reading this blog to analyze your portfolio and consider taking some money off the table and maybe tighten up your trailing stop losses to protect your profits.
I analyzed our investment partnership fund yesterday and we are up 7.7% YTD compared to the S&P500 - up 2.3%. This is a great return and our portfolio is well hedged, but I am cashing out some positions and closing some option trades for big gains now to lock in some profit.
My instinct tells me that the markets are a bit toppy. I say instinct, but really, the markets are historically high right now with the Wilshire 5000 at about 22x P/E. As a value based investor, this is expensive to me. With such huge gains in our portfolio, I am trimming some holdings and increasing the cash position waiting for a pullback and some good buying opportunities.
I suggest you consider the same. Happy trading.
I analyzed our investment partnership fund yesterday and we are up 7.7% YTD compared to the S&P500 - up 2.3%. This is a great return and our portfolio is well hedged, but I am cashing out some positions and closing some option trades for big gains now to lock in some profit.
My instinct tells me that the markets are a bit toppy. I say instinct, but really, the markets are historically high right now with the Wilshire 5000 at about 22x P/E. As a value based investor, this is expensive to me. With such huge gains in our portfolio, I am trimming some holdings and increasing the cash position waiting for a pullback and some good buying opportunities.
I suggest you consider the same. Happy trading.
Tuesday, March 16, 2010
Here Comes the Rate Hikes
The pressure is now on to raise interest rates. Read this article here from Yahoo Finance. Now is the time to start thinking about our portfolios. We need to not only prepare our defensive strategy, but we need to understand how to profit from imminent interest rate increases.
The obvious choice is to short long term treasuries. When interest rates rise, all of the existing bonds fall in price due to the higher rate paid on new issues. This drives down bond prices so shorting is the obvious and easy way. There are several ETF's the allow you to take advantage of this. you can sell short the ETF TLT as it tracks the long bond. If you aren't comfortable with shorting, you can buy the ETF TBF, which is a fund that shorts the long bond for you. There are a couple of double and triple short and long ETF's, but I personally don't like the volatility and the lack of a direct correlation.
You can also buy put options or sell call options on these ETF's if you are interested in leveraging your returns. Happy trading.
The obvious choice is to short long term treasuries. When interest rates rise, all of the existing bonds fall in price due to the higher rate paid on new issues. This drives down bond prices so shorting is the obvious and easy way. There are several ETF's the allow you to take advantage of this. you can sell short the ETF TLT as it tracks the long bond. If you aren't comfortable with shorting, you can buy the ETF TBF, which is a fund that shorts the long bond for you. There are a couple of double and triple short and long ETF's, but I personally don't like the volatility and the lack of a direct correlation.
You can also buy put options or sell call options on these ETF's if you are interested in leveraging your returns. Happy trading.
Monday, March 15, 2010
Bad news for BSX - Good news for me
Boston Scientific took a nosedive overnight. They are having a bad few months. See the news report here. I won't go into the details, you can read it on the link. But BSX has seemed to have reached rock bottom.
They are hated and the price is near all time lows as of today. The news today has created a massive sell off destroying the stock price. And all I can hear is ka-ching.
Today I sold August $7 put options for $.95. This is the kind of market anomaly I love. I look for stocks the world hates. But I generally sell put options and collect the premiums in lieu of buying the stock. I prefer the income and the downside protection it gives. Happy trading.
They are hated and the price is near all time lows as of today. The news today has created a massive sell off destroying the stock price. And all I can hear is ka-ching.
Today I sold August $7 put options for $.95. This is the kind of market anomaly I love. I look for stocks the world hates. But I generally sell put options and collect the premiums in lieu of buying the stock. I prefer the income and the downside protection it gives. Happy trading.
Wednesday, March 10, 2010
How to Track Trailing Stop Losses
Today I want to discuss trailing stops. If you have any experience with investing or trading, you are surely aware of stop loss orders. However, this is not exactly what I am talking about.
I want to show you how to track trailing stops. I will illustrate. You buy stock X for $100 and track a trailing stop of 10%. This means if X goes to $90, you sell and book a $10 loss. Of course no one wants to lose, but keeping track of your losses and cutting them early will eliminate emotion from your trading and protect you from a catastrophic loss. With a trailing stop, the 10% moves up as the price of the stock increases. So if X goes to $150 then you sell at $135. Thus locking in your profit at a minimum of $35.
It is really quite easy to do this. I personally just use an excel spreadsheet. I enter the stock name, symbol, purchase price, and high price. Then in the next column I enter my trailing stop of 25%, 15% or 10%, depending on the stock. I use a formula that autmatically gives me my sell price. At least 2-3 times per week, I look at the closing prices of my stocks and adjust. If a stock makes a new high, I adjust my high price. If it closes below my sell price, I enter a sell order for the next day. It took about 30 minutes to create the original spreadsheet with the formulas and about 5-10 minutes to update. I consider this time well spent.
You will also need to consider your dividends when tracking your trailing stops. If the stock is trading at $50 and it pays a $1 quarterly dividend, then the stock will drop by approximately $1 on the ex-dividend day. Keep in mind that each time you are paid this $1 dividend, this reduces your cost basis by $1 and thus should lower your high price by $1. This way you don't get stopped out of a stock too early due to a dividend payment.
You may ask, "why don't I just enter the trailing stop order with my broker?" It is true that most brokers now will allow you to enter a trailing stop loss order and just not worry about it any more. I would never, ever enter any type of stop loss order with my broker. The market makers are there to take advantage of you. If you enter a 10% trailing stop order in with your broker on a stock that cost $50, the order is in the system to sell at $45. If the stock drops to $45.50, market makers can push the price down to $45 to buy your shares and almost immediately the price can run back up. I have personally experienced this and it taught me my lesson.
I used to think with high volume stocks, I could enter my trailing stop orders with my broker and just forget about it. Once I had a stock trading at about $340 per share and my trailing stop order was approximately $312. One morning my shares were sold at EXACTLY my trailing stop order price, TO THE PENNY. To the penny!!! And within minutes the stock was back trading at around $330 per share. Lesson learned.
The point is you need to take control of your trading and not let someone else decide when you sell. It is important to have an investment strategy. This strategy involves both the price you pay AND the price you sell. If you establish this in your strategy, you eliminate the emotion from your investments. Trailing stops has been one of the most important things I have learned in my investing career and I hope you will employ this strategy as well. Happy trading.
I want to show you how to track trailing stops. I will illustrate. You buy stock X for $100 and track a trailing stop of 10%. This means if X goes to $90, you sell and book a $10 loss. Of course no one wants to lose, but keeping track of your losses and cutting them early will eliminate emotion from your trading and protect you from a catastrophic loss. With a trailing stop, the 10% moves up as the price of the stock increases. So if X goes to $150 then you sell at $135. Thus locking in your profit at a minimum of $35.
It is really quite easy to do this. I personally just use an excel spreadsheet. I enter the stock name, symbol, purchase price, and high price. Then in the next column I enter my trailing stop of 25%, 15% or 10%, depending on the stock. I use a formula that autmatically gives me my sell price. At least 2-3 times per week, I look at the closing prices of my stocks and adjust. If a stock makes a new high, I adjust my high price. If it closes below my sell price, I enter a sell order for the next day. It took about 30 minutes to create the original spreadsheet with the formulas and about 5-10 minutes to update. I consider this time well spent.
You will also need to consider your dividends when tracking your trailing stops. If the stock is trading at $50 and it pays a $1 quarterly dividend, then the stock will drop by approximately $1 on the ex-dividend day. Keep in mind that each time you are paid this $1 dividend, this reduces your cost basis by $1 and thus should lower your high price by $1. This way you don't get stopped out of a stock too early due to a dividend payment.
You may ask, "why don't I just enter the trailing stop order with my broker?" It is true that most brokers now will allow you to enter a trailing stop loss order and just not worry about it any more. I would never, ever enter any type of stop loss order with my broker. The market makers are there to take advantage of you. If you enter a 10% trailing stop order in with your broker on a stock that cost $50, the order is in the system to sell at $45. If the stock drops to $45.50, market makers can push the price down to $45 to buy your shares and almost immediately the price can run back up. I have personally experienced this and it taught me my lesson.
I used to think with high volume stocks, I could enter my trailing stop orders with my broker and just forget about it. Once I had a stock trading at about $340 per share and my trailing stop order was approximately $312. One morning my shares were sold at EXACTLY my trailing stop order price, TO THE PENNY. To the penny!!! And within minutes the stock was back trading at around $330 per share. Lesson learned.
The point is you need to take control of your trading and not let someone else decide when you sell. It is important to have an investment strategy. This strategy involves both the price you pay AND the price you sell. If you establish this in your strategy, you eliminate the emotion from your investments. Trailing stops has been one of the most important things I have learned in my investing career and I hope you will employ this strategy as well. Happy trading.
Saturday, March 6, 2010
Covered call/naked put with C
I want to thank MJ with The Fastlane to Millions for bringing this up in one of his forum posts. I have been considering a trade with Citi for a couple of weeks now, but his post brought it back to the forefront.
Just to be clear, I have not yet executed this trade for my investment partnership unlike the others that have been mentioned. But it is worth discussing and I would certainly appreciate any feedback.
Here goes; buy 10,000 shares of C at about $3.50/share. Sell 100 September $4 calls for about $.34 and sell 100 September $2.50 puts for about $.17. This gives you a net premium of $.51 giving you a cost basis on C of $2.99.
This means as long as C trades between $2.50 - $4.00/share at September expiration, your options expire worthless and you keep 100% of the profit. If C trades below $2.50 at September expiration you must buy 10,000 shares of C at this price. But remember, you have already collected $.51/share in option premium, so in order to lose money, C must trade below $1.99/share.
If C is trading above $4/share at September expiration, you automatically sell your shares for $4 netting an additional $.50/share in profit giving you a total profit of $1.01/share on a $3.50/share investment for a 6 month holding period. That is about 60% annualized return. Not bad.
Happy trading.
Just to be clear, I have not yet executed this trade for my investment partnership unlike the others that have been mentioned. But it is worth discussing and I would certainly appreciate any feedback.
Here goes; buy 10,000 shares of C at about $3.50/share. Sell 100 September $4 calls for about $.34 and sell 100 September $2.50 puts for about $.17. This gives you a net premium of $.51 giving you a cost basis on C of $2.99.
This means as long as C trades between $2.50 - $4.00/share at September expiration, your options expire worthless and you keep 100% of the profit. If C trades below $2.50 at September expiration you must buy 10,000 shares of C at this price. But remember, you have already collected $.51/share in option premium, so in order to lose money, C must trade below $1.99/share.
If C is trading above $4/share at September expiration, you automatically sell your shares for $4 netting an additional $.50/share in profit giving you a total profit of $1.01/share on a $3.50/share investment for a 6 month holding period. That is about 60% annualized return. Not bad.
Happy trading.
Wednesday, March 3, 2010
Today's Trade - GDX
Today I will discuss a trade I made earlier in the week. My last trade analysis discussed SSRI, and today, my trade with GDX was very similar for similar reasons. I am becoming increasingly anxious about the state of the markets these days and I am moving out of overpriced positions into opportunities that tend to rise with the debasement of the USD.
Earlier this week I bought GDX. GDX is the gold miners ETF. Gold miners have lagged the run up in the price of gold, that is surely to be a temporary situation and we plan to take advantage of it. I don't want to go into an in depth analysis of gold miners, but they generally are expensive operations that have a fixed cost to pull gold out of the ground. As the price of gold increases, the profits of gold miners goes up dramatically which makes miners speculative due to their volatility.
But by spreading the risk across the industry with th ETF, we can smooth out a bit of the volatility. And with the printing presses in the US and many countries running at full steam, commodities like gold have no where to run but up.
I bought GDX this week at about $44/share. At the same time, I sold a corresponding number of $50/share call options with a September expiration for almost $3/share (I always use round numbers to simplify math). I also sold a corresponding number of $42/share puts options with a September expiration for about $4/share. So, to recap, I collected an immediate $7/share of premiums thus lowering my cost basis on GDX to $37/share.
That means GDX has to fall to below $37/share by September for me to lose money. As you can see, this significantly reduces my risk with GDX. Even if it is at or below $37/share by then, I will just sell another round of call options to collect more income and reduce my cost basis. If GDX is trading between $42-$50/share in September at expiration, then the call and put options expire worthless and I keep the premiums. I would then likely sell another round of options to collect additional premiums. If GDX is trading below $42/share in September, I will be required to be more shares based on the number of put options I sold. If GDX is above $50/share in September at expiration, I will be forced to sell my shares at $50/share thus collecting another $6/share in capital appreciation.
My risk here is that GDX falls about 16% by September. This is very low due to the current situation. For me, this was a very low risk, high reward trade.
Earlier this week I bought GDX. GDX is the gold miners ETF. Gold miners have lagged the run up in the price of gold, that is surely to be a temporary situation and we plan to take advantage of it. I don't want to go into an in depth analysis of gold miners, but they generally are expensive operations that have a fixed cost to pull gold out of the ground. As the price of gold increases, the profits of gold miners goes up dramatically which makes miners speculative due to their volatility.
But by spreading the risk across the industry with th ETF, we can smooth out a bit of the volatility. And with the printing presses in the US and many countries running at full steam, commodities like gold have no where to run but up.
I bought GDX this week at about $44/share. At the same time, I sold a corresponding number of $50/share call options with a September expiration for almost $3/share (I always use round numbers to simplify math). I also sold a corresponding number of $42/share puts options with a September expiration for about $4/share. So, to recap, I collected an immediate $7/share of premiums thus lowering my cost basis on GDX to $37/share.
That means GDX has to fall to below $37/share by September for me to lose money. As you can see, this significantly reduces my risk with GDX. Even if it is at or below $37/share by then, I will just sell another round of call options to collect more income and reduce my cost basis. If GDX is trading between $42-$50/share in September at expiration, then the call and put options expire worthless and I keep the premiums. I would then likely sell another round of options to collect additional premiums. If GDX is trading below $42/share in September, I will be required to be more shares based on the number of put options I sold. If GDX is above $50/share in September at expiration, I will be forced to sell my shares at $50/share thus collecting another $6/share in capital appreciation.
My risk here is that GDX falls about 16% by September. This is very low due to the current situation. For me, this was a very low risk, high reward trade.
Monday, March 1, 2010
Today's Option Trade - SSRI
Today I want to share with you a recent option trade I made. To give you a bit of background, in addition to consulting with entrepreneurs and investors about asset protection strategies, I also manage a small investment partnership.
In 2008, we had a -10% return. While negative is never good, it significantly beat the market indexes. In 2009, we had a return of just over 100%. Of course we blew the indexes out of the water.
A significant part of my strategy is to reduce risk and increase returns using options. Many people view option trading as a 'risky' investment vehicle. Actually, if done properly, options can significantly reduce risk.
Critical to my strategy is to only trade options on companies I have done the research on and have decided the company is a good value. Last week, I traded a company called Silver Standard Resources Inc, ticker SSRI. SSRI is a metals miner, primarily silver. I won't go into detail on the company research, but suffice to say I am very bullish on commodities with all of this money printing that is going on lately.
I bought SSRI at about $17/share. I had previously determing SSRI to be a good value at this price. Even the average analyst opinion calls for a $33/share price target in 12 months. In addition to buying the shares, I sold call options with a $19/share strike price with a June expiration for about $1.50/share. I also sold put options with a $17/share strike price with a June expiration for about $2.00/share.
What this means is that if at option expiration, SSRI is at or above $19/share, I will sell all of my shares at that price, booking a $2.00/share profit ($19-17). It also means that if SSRI is at or below $17/share at option expiration, I must buy SSRI for $17/share.
But, keep in mind, I have already collected $2.00 + $1.50 or $3.50 in option premiums, thus lowering my cost basis to $13.50/share for SSRI. So in order for me to lose money, SSRI must be trading below $13.50/share in June. As you can see, I have significantly reduced my risk by reducing my cost basis.
Plus, the option premiums are credited to my account immediately. So, in June if SSRI is trading between $17 - $19/share, both the put and call options expire worthless and I keep 100% of the premiums. If SSRI is trading between $13.50 - $17/share, I buy more SSRI, but still at a profit and I still think SSRI is a great value. At this stage, I would just sell more call options to gain addtional premium. If SSRI is trading above $19/share, my SSRI shares are called away and I sell them at $19/share gaining an additional $2/share in profit, giving me a total of $5.50/share on a $17 investment for a 4 month period. If SSRI is trading below $13.50/share I lose money, but I would sell additional call options to regain some or all of my loss.
As you can see, option trading if done properly can reduce risk and increase your returns along with provide cash income. My biggest risk here as I see it is if SSRI is trading at $30/share in June and I give up the additional profit.
If you are serious about asset protection and wealth creation, option trading should be on your radar. It's worth the time to learn how to do it effectively. Until next time, trade well.
In 2008, we had a -10% return. While negative is never good, it significantly beat the market indexes. In 2009, we had a return of just over 100%. Of course we blew the indexes out of the water.
A significant part of my strategy is to reduce risk and increase returns using options. Many people view option trading as a 'risky' investment vehicle. Actually, if done properly, options can significantly reduce risk.
Critical to my strategy is to only trade options on companies I have done the research on and have decided the company is a good value. Last week, I traded a company called Silver Standard Resources Inc, ticker SSRI. SSRI is a metals miner, primarily silver. I won't go into detail on the company research, but suffice to say I am very bullish on commodities with all of this money printing that is going on lately.
I bought SSRI at about $17/share. I had previously determing SSRI to be a good value at this price. Even the average analyst opinion calls for a $33/share price target in 12 months. In addition to buying the shares, I sold call options with a $19/share strike price with a June expiration for about $1.50/share. I also sold put options with a $17/share strike price with a June expiration for about $2.00/share.
What this means is that if at option expiration, SSRI is at or above $19/share, I will sell all of my shares at that price, booking a $2.00/share profit ($19-17). It also means that if SSRI is at or below $17/share at option expiration, I must buy SSRI for $17/share.
But, keep in mind, I have already collected $2.00 + $1.50 or $3.50 in option premiums, thus lowering my cost basis to $13.50/share for SSRI. So in order for me to lose money, SSRI must be trading below $13.50/share in June. As you can see, I have significantly reduced my risk by reducing my cost basis.
Plus, the option premiums are credited to my account immediately. So, in June if SSRI is trading between $17 - $19/share, both the put and call options expire worthless and I keep 100% of the premiums. If SSRI is trading between $13.50 - $17/share, I buy more SSRI, but still at a profit and I still think SSRI is a great value. At this stage, I would just sell more call options to gain addtional premium. If SSRI is trading above $19/share, my SSRI shares are called away and I sell them at $19/share gaining an additional $2/share in profit, giving me a total of $5.50/share on a $17 investment for a 4 month period. If SSRI is trading below $13.50/share I lose money, but I would sell additional call options to regain some or all of my loss.
As you can see, option trading if done properly can reduce risk and increase your returns along with provide cash income. My biggest risk here as I see it is if SSRI is trading at $30/share in June and I give up the additional profit.
If you are serious about asset protection and wealth creation, option trading should be on your radar. It's worth the time to learn how to do it effectively. Until next time, trade well.
Sunday, February 28, 2010
What is Asset Protection?
For many, this conjures images of the stereotypical Colombian drug lord laundering money in some offshore bank account in the Caymans. For others, it may bring forth images of former Enron executives with their money stashed away in Bermuda. And while this may be true for some, there are many legitimate entrepreneurs and investors at all levels who take advantage of legally protecting their assets from the very real threats that exist today.
Asset protection, simply put, involves legally protecting your assets from the threats that prevail in today's society. There are two main threats to your wealth; litigation and government interference.
In 2008, there were nearly 1.2 million lawsuits filed in the US. If you consider there are approximately 300 million people, half of them in the workforce, this leaves about 1.2 million lawsuits for every 150 million people. But from 150 million people, less than 20% of them are really at risk to lose something in a lawsuit. That leaves 30 million people at risk. In this simplified example, 1 in every 25 at risk people were sued in 2008. 1 in 25. Not very good odds...
Are you a real estate investor? You can count on that number going much, much higher. You just never know when your next tenant opens a meth lab in the basement and blows the house up and kills someone. Are your remaining assets at risk in this case? Are you willing to risk your entire future on an event of which you have no control?
Asset protection involves anything from simple domestic LLC, up to a complex strategy involving offshore trusts and IBC's. The strategy varies widely and is very specific to each situation. This is where proper counsel is crucial. You don't want to find yourself on the wrong side of the law with the government. But a properly developed asset protection strategy will protect your wealth for future generations and give you that much needed 'sleep at night' insurance.
I will discuss government interference at another date as that is too deep of a topic for one reading. Until next time, live well.
Asset protection, simply put, involves legally protecting your assets from the threats that prevail in today's society. There are two main threats to your wealth; litigation and government interference.
In 2008, there were nearly 1.2 million lawsuits filed in the US. If you consider there are approximately 300 million people, half of them in the workforce, this leaves about 1.2 million lawsuits for every 150 million people. But from 150 million people, less than 20% of them are really at risk to lose something in a lawsuit. That leaves 30 million people at risk. In this simplified example, 1 in every 25 at risk people were sued in 2008. 1 in 25. Not very good odds...
Are you a real estate investor? You can count on that number going much, much higher. You just never know when your next tenant opens a meth lab in the basement and blows the house up and kills someone. Are your remaining assets at risk in this case? Are you willing to risk your entire future on an event of which you have no control?
Asset protection involves anything from simple domestic LLC, up to a complex strategy involving offshore trusts and IBC's. The strategy varies widely and is very specific to each situation. This is where proper counsel is crucial. You don't want to find yourself on the wrong side of the law with the government. But a properly developed asset protection strategy will protect your wealth for future generations and give you that much needed 'sleep at night' insurance.
I will discuss government interference at another date as that is too deep of a topic for one reading. Until next time, live well.
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