Pope / Merrill Options Trading: Generating Real Income in a Zero Interest World

A Guide to Generating Reliable Income by Trading Options on Blue Chip Stocks
1. Auflage 2021
ISBN: 978-1-0983-8677-1
Verlag: BookBaby
Format: EPUB
Kopierschutz: PC/MAC/eReader/Tablet/DL/kein Kopierschutz

E-Book, Englisch, 124 Seiten

Unlike many of the investment books on the market today, this one was not written by a stockbroker, market maker, professional money manager or some other individual making their livelihood buying or selling securities.  This book was written by two experienced businessmen who were concerned about how to retire successfully given the extremely low returns available in today's low interest environment.  Both authors are financially conservative, and neither are prone to jump on the latest bandwagon.  This book is a product of their learnings and experience, and they are happy to share what they believe to be a realistic approach to income generation in retirement or just general portfolio growth for those not ready to take the retirement leap. If at times the book seems redundant, that is intentional. It takes a few iterations to understand the concepts. This purpose of this book is to provide you with the information to begin trading options successfully, we have resisted the impulse to include every possible permutation of each example trade or sharing information that would be 'helpful someday, but not today.' Options are like an onion with layers and layers of complexity and alternative choices. That is one of the things that makes options trading so much more attractive to us than stock ownership. In this book we are offering up basic strategies, and, as you begin to trade with options you will learn the many variables and alternatives available to you. For now, master the basics and the rest will come with time. You can be a successful options trader just using the basics outlined in this book.

Autoren/Hrsg.

Pope, Joel

Merrill, Michael

Leseproben

Part 1 - Introduction
 
  Overview:
The world is changing, and you need to change with it by getting engaged with your retirement planning. This starts by conquering your fear of the unknown. There are numerous viable strategies, but do not look for the golden bullet. Investing is a marathon not a sprint. This book is an overview of one conservative strategy that has worked very well for us and you need to decide if it will work well for you.   Why do you hate your money? If you are like us, we spent over 2,500 hours a year making money but did not spend 1% of that time, (25 hours a year), managing our money. Does that make sense?   As a parent, you strive to provide your children with a safe, nurturing environment where they can grow to reach their full potential. Are you a good “parent” to your retirement life or would people call Child Protective Services and report you for neglect? If we had to name our biggest regrets about investing it is not that we did not keep the Netflix stock we bought at $14 or selling Marriott at $45, Facebook at $25 or Amazon at $280… we regret not taking a more active role in our investments earlier in life. That bad decision outweighs all the individual stock mistakes we could ever make. Get engaged with managing your investments, you have the intelligence, you have the reason to be motivated… what is stopping you?   We are not saying you should take over all your retirement accounts, that would be reckless. Start by managing a small amount, say 10-20% and your knowledge and confidence will grow as you learn. Even if you do not end up directly managing all of your investments, we believe you will make better financial decisions overall if you are a more knowledgeable investor so start getting involved.   Earning income after retirement has changed dramatically since the events in 2008 & 2009 and even more so following the interest rate crash associated with the Covid pandemic. An investor used to be able to generate 6-8% in income in relatively low risk investments. It used to be that a simple rolling CD concept worked in retirement, where you determine your monthly income needs & have 12 one-year CD’s maturing one per month. Each month a CD matures, you get paid and you roll the CD for another year. Today, $1,000,000 invested in CD’s might earn you $10,000 to $20,000 a year, it is hard to live comfortably on those kinds of returns.   Another consideration is that before you analyze returns from various investments, you need to understand that your “buying power” is not standing still. In 2019, inflation was 1.8% and for 2020 and 2021 it is forecasted to be just over 2%. So basically, you wake up in the morning and your “buying power” is shrinking by about 2% a year hence you are earning 2% less than you think on any returns.   In a perfect world, you would generate enough income off your principal to live comfortably leaving your capital intact which reduces financial stress during your retirement. Our strategy is to generate monthly, reliable cash income on your principal for you to live on as opposed to paper gains on stock appreciation that can disappear with a market downturn. This is a critical aspect of our strategy as the cash generated is real money in your account and not just paper gains.   So what keeps us from becoming more involved in managing our money? For beginners, one issue may be the fear of the unknown and an unfamiliar language such as P/E ratios, EPS, delta, put, call, ex-dividend date, etc. These are terms you may not be familiar with but please do not be intimidated. “I have never done it before” is no different than everything else you have had to do for the first time and its far less complicated than you think. Think for a moment of all the “never did it before” decisions you have made in your life. Becoming a parent, buying your first car or house, accepting a new job, moving to a new state. All of these are equally serious and “the specialized knowledge” is far less difficult than your everyday job. Chances are, in your career you advanced by taking on a “never done it before role” and growing into it. This is no different.   The professional money managers want you to be intimidated and they know this fear makes what they do seem complicated and mysterious to you and justifies their fees. Ask yourself “who cares more about your money than you?” Not the pros as they care more about keeping a roof over their head and making money off you than they care about your money. We are not saying they cannot bring value, but what we are saying is do not rely solely on professional money managers. It is your money so get engaged!   Doctors take the Hippocratic oath to uphold specific ethical standards with the message being “do no harm.” Unfortunately, financial advisors are not held to that standard when managing your financial health. You can track the government trying to pass legislation protecting the customer to the early 1900’s. You can also track the industry fighting this legislation since Day 1. Recently, in 2019, the U.S. Fifth Circuit Court of Appeals officially vacated the Department of Labor’s proposed Fiduciary Rule effectively killing it … isn’t that scary? You would think that is the whole idea of being a financial advisor, to do what is right for their customer.   Another issue are the fees you pay. Just consider the impact on your life if you did not have to pay the IRS income taxes on your salary at work? By eliminating the fees you pay to “professionals,” you essentially have that effect on your investment funds.   For example, if you have $100,000 invested and make 6%, the average investment advisor takes 1%-2% of your total portfolio value for fees which would be $1,000 to $2,000. On $6,000 in earnings that is 17-33% of your income! To put it into perspective, if you had a job that paid $200,000 in 2019 you paid about 21% in income tax.   One of the most common measurements used in the investing world is the annual return of the S&P 500. The S&P 500 is comprised of 500 companies that represents a broad view of the American economy. The performance of the S&P is considered to be one of the best representations of the US stock market. Clearly, there are thousands of investment vehicles and numerous funds that provide good returns and may even beat the S&P benchmark but, there are even more that do worse. One thing they all have in common is fees that they charge you and those fees can be a significant expense so understand them before investing.   Investment Choices:
Let us look at some of your investment choices. Due to the COVID-19 crash and interest rates subsequently going to basically zero, today’s choices have become even worse than recent years prior to the pandemic. With that said, we will provide figures from December 2019 in order to represent a more “normal” investment environment.   Investment Choice #1 – S&P Index Fund: The benchmark most funds compare themselves to is the return of the S&P 500. The ten-year return (2010-2020) for the S&P is currently 13.6% annually. To provide more perspective, the 140-year annual return is 9.2%. A 10-year sample, including the 2008 crash (2008-2018) is a 9.8% annual return. Yes, that means if you had money in the S&P fund pre-crash it would be up about 98% in total over the next 10 years so not only did it recover all the “losses” from the 2008 crash, but it almost doubled.   Warren Buffet’s instructions in his will calls for 90% of his net worth to be put in Vanguard’s VOO which is an S&P 500 ETF (Exchange Traded Fund or a group of stocks that you can invest in) that models the performance of the S&P. The fee for this fund is 0.05% (five-one hundredths of one percent) which is less than 96% of all available funds. VOO has $620 billion invested as of January 2021 and the return will mirror the S&P. His belief is that long term, he is willing to invest in the success of major US companies. The drawback to VOO, like any stock investment, is that it will be subject to significant market swings and subsequently more suited to a long-term investment strategy.   Investment Choice #2 – Bank Savings Accounts and One-Year CD...