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Thursday, May 27, 2010
A Buy-Write investment strategy...
Somebody recently asked me about how to make money when their stocks 'haven't moved' and if they should re-season their portfolio. One thing I've learned about self management and the free access to the investment world via all of the on-line brokers, is that it can make you impulsive. Overcome this by educating yourself...off line. It's easy to get caught up in the herd mentaility and before you know it you've lost MORE money!
Here's the strategy. A buy-write creates an income stream against a position you hold monthly. It's rather conservative so you can even do it in your IRA (with authorization --and the only options strategy approved for IRA's). OOHHHH he said 'options' which are derivatives and they ruined the world...CNN said so! Not really.
Okay, how does it work? In the example above a friend said that his stocks were not going anywhere. Upon closer look they were channeling or staying in about the same upper and lower ranges. This kind of predictability creates a 'bet'. That bet is that the stock may not break out to upper highs or lower lows. For the sake of simplicity I'll just explain the theory and you can look up the stock options call symbols yourself. Besides, they recently adopted a new call letter standard and I'm not going to type them because they're too long now. So concept.
Let's pick a stock, XYZ. You see it channels and you don't want to sell at a loss but you're in not hurry to sell either. Okay. So you can look at options that have a premium and you can sell somebody the right to buy your stock at a higher price at some point in the future. That's a deal huh? If XYZ is trading at $10 your cost is $8, would you be willing to sell your stock @ $15 if I paid you?!
Example: XYZ stock is trading @ $10; The June 15, 15 CALLS are trading at say .30 (there's a lot of theory here and I'm just picking a number for mathmatical purposes but .30 would not be an accurate price for these calls). CALLS are an option that when sold obligate you to sell your stock at a set price, so you would have to sell your stock @ $15 in this example. Is that worth it? $8-$15= $7 profit+. You would be 'writing' a call. Hence the name...buy (stock) and write (options). Calls are priced per 100 shares so you would control effectively 100 shares. So 100 x .30 (quoted price) = $30 less commissions. Well that's only $30 big deal. Well if you own 1000 shares you can write 10 options and now it becomes $300. Your returns have grown for doing virtually nothing.
So what could go wrong? Well you get 'called out' which means the stock rises past your $15 contract and you get exercised. 1000 x 15 = $15,000 is now sitting in your brokerage account because you had to sell...and you get to keep the premium you took in of $300.00. If you like the stock you re-purchase it. Hopefully, you've done your homework on the channelling and you can repeat this exercise because you really don't want the underlying stock to hit your price. In your IRA it's not a taxable event...in a brokerage it is.
With the premium you've taken in you can buy more shares of the underlying stock and next month you can 'write' one more option and so on and so on...eventually you'll be taking in a large sum of money every month on a 'non moving stock'.
Questions or comments are welcome as I've simplified a lot of this information. You can secure options information by calling on the OCC (options clearing corp) to receive the dislosure doc's on options and how they work (calendar and all...free).
Here's the strategy. A buy-write creates an income stream against a position you hold monthly. It's rather conservative so you can even do it in your IRA (with authorization --and the only options strategy approved for IRA's). OOHHHH he said 'options' which are derivatives and they ruined the world...CNN said so! Not really.
Okay, how does it work? In the example above a friend said that his stocks were not going anywhere. Upon closer look they were channeling or staying in about the same upper and lower ranges. This kind of predictability creates a 'bet'. That bet is that the stock may not break out to upper highs or lower lows. For the sake of simplicity I'll just explain the theory and you can look up the stock options call symbols yourself. Besides, they recently adopted a new call letter standard and I'm not going to type them because they're too long now. So concept.
Let's pick a stock, XYZ. You see it channels and you don't want to sell at a loss but you're in not hurry to sell either. Okay. So you can look at options that have a premium and you can sell somebody the right to buy your stock at a higher price at some point in the future. That's a deal huh? If XYZ is trading at $10 your cost is $8, would you be willing to sell your stock @ $15 if I paid you?!
Example: XYZ stock is trading @ $10; The June 15, 15 CALLS are trading at say .30 (there's a lot of theory here and I'm just picking a number for mathmatical purposes but .30 would not be an accurate price for these calls). CALLS are an option that when sold obligate you to sell your stock at a set price, so you would have to sell your stock @ $15 in this example. Is that worth it? $8-$15= $7 profit+. You would be 'writing' a call. Hence the name...buy (stock) and write (options). Calls are priced per 100 shares so you would control effectively 100 shares. So 100 x .30 (quoted price) = $30 less commissions. Well that's only $30 big deal. Well if you own 1000 shares you can write 10 options and now it becomes $300. Your returns have grown for doing virtually nothing.
So what could go wrong? Well you get 'called out' which means the stock rises past your $15 contract and you get exercised. 1000 x 15 = $15,000 is now sitting in your brokerage account because you had to sell...and you get to keep the premium you took in of $300.00. If you like the stock you re-purchase it. Hopefully, you've done your homework on the channelling and you can repeat this exercise because you really don't want the underlying stock to hit your price. In your IRA it's not a taxable event...in a brokerage it is.
With the premium you've taken in you can buy more shares of the underlying stock and next month you can 'write' one more option and so on and so on...eventually you'll be taking in a large sum of money every month on a 'non moving stock'.
Questions or comments are welcome as I've simplified a lot of this information. You can secure options information by calling on the OCC (options clearing corp) to receive the dislosure doc's on options and how they work (calendar and all...free).
Relay for Life....
Well the Relay for Life went off without a hitch this year! I was walking with the Kiwanis Club of Bolingbrook/Romeoville. We only raised $340 as a team, which pailed in comparison to the Home Depot team who raised over $7k on their maiden voyage! Wow. They said that they were going to get the entire district involved next year....
Our team was comprised of cancer survivors and volunteers. One serves on the ACS committee, one is a survivor, I volunteer and the others also volunteer. You may have seen the "HOPE" sign on the hill in the grass. I helped paint that this year and it turned out fantastic (I'm so proud to have supported Bruce Keller who came up with the idea). The weather was beautiful and I believe going in to the event we had raised over $72k dollars for research...what a great cause. It's a terrible disease that robs you of your life and I'm happy to support an organization that is searching for the cure. If you would like to donate go to http://www.relayforlifebolingbrookromeoville.com/ and search me out by name or team and you can make a donation up until August! Thank you!
Somebody asked me about a Buy-write investment option....I'll explain that in my next blog.
Our team was comprised of cancer survivors and volunteers. One serves on the ACS committee, one is a survivor, I volunteer and the others also volunteer. You may have seen the "HOPE" sign on the hill in the grass. I helped paint that this year and it turned out fantastic (I'm so proud to have supported Bruce Keller who came up with the idea). The weather was beautiful and I believe going in to the event we had raised over $72k dollars for research...what a great cause. It's a terrible disease that robs you of your life and I'm happy to support an organization that is searching for the cure. If you would like to donate go to http://www.relayforlifebolingbrookromeoville.com/ and search me out by name or team and you can make a donation up until August! Thank you!
Somebody asked me about a Buy-write investment option....I'll explain that in my next blog.
Thursday, May 13, 2010
Graduation...
My eldest son just passed over in rank to a BEAR cub in Scouts! The ceremony was brief but very cool and the boys had a great time. He is so excited now that his brag vest is filling in with the different badges he's earned. Additionally, he is learning soooo much that he isn't in school! I'm so glad.
I've been so involved with the Scouts and will be helping out extensively with the upcoming Day Camp in Bolingbrook the week of June 15. I will be teaching the kids bow and arrow shooting and safety along with BB gun shooting and safety. We have a new director and she seems to understand project management fundamentals so we're doing things a little differently this year. Yeah!! 'bout time.
On the Kiwanis front: The Key Club dinner for the members will be May 20 in the p.m. @ Senior Star in Romeoville, IL. If you haven't been to Senior Star is an awesome assisted community living facility that is new to Romeoville. You need to see this place. They start @ $2,100/mo for care and they really leave nothing out of the equation. Stop by!
The Kiwanis Scholarship awards (yes the peanut day promotions really do pay for this!) will be awarded @ 8:00 a.m. at the Bolingbrook High School. This is a big deal considering we're doling out $4,000 at BB High School and $4,000 at the Romeoville High School. All of the students did wonderful jobs participating in the community and justifying why they should be the recipients of the scholarships but ultimately we had to pick just a couple of winners. Keep an eye on this kids because they WILL BE the future leaders in our communities!
Mobile marketing is one step closer to completion. I'm just lining up my vendors, structure and pricing. This is going to ramp up a lot of local businesses (I hope!) and give them the exposure that only big companies have been able to afford. Quite cool.
Sine Timore
I've been so involved with the Scouts and will be helping out extensively with the upcoming Day Camp in Bolingbrook the week of June 15. I will be teaching the kids bow and arrow shooting and safety along with BB gun shooting and safety. We have a new director and she seems to understand project management fundamentals so we're doing things a little differently this year. Yeah!! 'bout time.
On the Kiwanis front: The Key Club dinner for the members will be May 20 in the p.m. @ Senior Star in Romeoville, IL. If you haven't been to Senior Star is an awesome assisted community living facility that is new to Romeoville. You need to see this place. They start @ $2,100/mo for care and they really leave nothing out of the equation. Stop by!
The Kiwanis Scholarship awards (yes the peanut day promotions really do pay for this!) will be awarded @ 8:00 a.m. at the Bolingbrook High School. This is a big deal considering we're doling out $4,000 at BB High School and $4,000 at the Romeoville High School. All of the students did wonderful jobs participating in the community and justifying why they should be the recipients of the scholarships but ultimately we had to pick just a couple of winners. Keep an eye on this kids because they WILL BE the future leaders in our communities!
Mobile marketing is one step closer to completion. I'm just lining up my vendors, structure and pricing. This is going to ramp up a lot of local businesses (I hope!) and give them the exposure that only big companies have been able to afford. Quite cool.
Sine Timore
Friday, May 7, 2010
New resume website...
http://darrylmccormick.resumeconnect.com/
Check out my website to learn more about my background and if I can be of benefit to you!
Check out my website to learn more about my background and if I can be of benefit to you!
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