I would argue that the unfavorable tax policy on the horizon will have the same effect as tightening, albeit a bit delayed.
2021 Stock Market
- Thread starter SoapyCy
- Start date
I would argue that the unfavorable tax policy on the horizon will have the same effect as tightening, albeit a bit delayed.
Home prices are irrelevant to most consumers. It's home mortgage payments that matter. Which is why prices are so correlated to 10 year moves..
Boomers and the greatest generation have soo much equity in their forever homes and they are the most reliable voters.. I'll guarantee home prices stay high as the political ramifications would be suicidal
Tech companies with no profitability need low rates for their entire business model dies. The emergence of SPAC's only makes this worse as more and more hit public markets.
Throughout 2021 I pivoted 1/2 of my portfolios to mutual funds with more value than growth and it's been a great trade as I really think profitable companies for the companies years will be viewed better. Kept about 1/3 of my holdings in high growth as I'm not yet 30 and want to stay long and diversified
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I buy ATT stock, week or two later it merged with discovery and announces it will half their dividend now. Crap.
I sold my shares a little over a month ago. Bought it at around $28 several years back, watching it go to $40 and then retrace during the pandemic. I started selling covered calls on it trying to generate some additional yield while they got their crap together, but it stalled for so long even the options premiums sucked. Thought I had missed the boat when shares rose from $30 and spiked this morning. Turns out I was only lucky.
I see it kept going down in After Hours. Never would have dreamed they would tank the dividend. They appeared to have plenty of money to cover it.
Just watch...this is how I predict it's going to play out. They're going to tank the stock, take all the dividend cash, focus on getting rid of debt and on what's profitable, and then arise from wherever the new bottom is. Assuming they don't do something stupid again like buying a dying business model such as DirectTV, it could and should be a major winner.
And of course expect a ton of stock options will be awarded to management based on the tanked share price and maybe even some inside buys. That will be the time to jump back in.
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Here's another strategy to consider. Instead of doing a buy/write, consider selling a put. If the share price of ABC company is $20 and you can earn $1.00 in premium by selling 30 day put @$19, or $.60 for a $17 put, you can grind out some pretty good yields or own the stock for a lower price if your option gets called. If you buy the stock, you've got $20 tied up. But with a $17 put, you're only tying up $17. The premium on the $17 put would earn 3.5%, (.60/17) or an annual return of 42%. (3.5% x 12). Annual return on the $1.00 premium for the $19 strike would be 63% annually.
The downside is that you're going to miss out on a parabolic move if they get an approval on a drug, but if it languishes, your cost basis is lower. If it goes sideways, you've still earned your premium. I would only use the strategy on a stock for which you'd have no problem owning even if bad news tanked the stock.
Selling calls and puts is like being the insurance company. The premiums can be great when volatility is high.
Here's another strategy to consider. Instead of doing a buy/write, consider selling a put. If the share price of ABC company is $20 and you can earn $1.00 in premium by selling 30 day put @$19, or $.60 for a $17 put, you can grind out some pretty good yields or own the stock for a lower price if your option gets called. If you buy the stock, you've got $20 tied up. But with a $17 put, you're only tying up $17. The premium on the $17 put would earn 3.5%, (.60/17) or an annual return of 42%. (3.5% x 12). Annual return on the $1.00 premium for the $19 strike would be 63% annually.
The downside is that you're going to miss out on a parabolic move if they get an approval on a drug, but if it languishes, your cost basis is lower. If it goes sideways, you've still earned your premium. I would only use the strategy on a stock for which you'd have no problem owning even if bad news tanked the stock.
Selling calls and puts is like being the insurance company. The premiums can be great when volatility is high.
So you sell the put for the obligation to purchase shares while selling the call for the obligation to sell, therefore, if the options do get assigned, your loss would be the difference between the two strike prices (not factoring in the premiums)?
There is another strategy called a poor man's (women's) covered call where you buy a far out in the money call option, and use that as collateral for selling short-term call options.
The key to good premiums is volatility. I tried this strategy with NLY, but the premiums were too low to justify doing so. They were ok with T, but I would recommend sitting that one out until the stock finishes bottoming. I sell both puts as well as calls. Current positions are OXY, X, NOK, CHS, and RIG.
I've been looking at GE as well. The premiums are decent. If you think about it, if you can bump your yield on stocks you're going to own anyway, your portfolio can perform equally as well without taking on additional risk. As Buffett says, the best way to boost your annual rate of return is to not lose money.
I just bought GE this morning for a covered call strategy. I sold a call for $22 about 30 days out. If I can continue to do this for a whole year, I could get about 20% return on the premiums. Didn’t think about Nokia, it I may employ this strategy there too.
Could you explain your put/call strategy in more detail, or link an article?
I usually only do single leg options....meaning I either sell a call or a put, but not both. Let's use NOK for an example. After the reddit freaks ran it to $9 a few months back, the option premiums were pretty salty. When I decided to establish a position, rather than buying shares, I simply sold a put. Technically, it wasn't an actual position as I only had my cash tied up in my brokerage account (in the event of execution) along with the premium I collected. If the option expired worthless, I just sold another one and collected some more premium. I typically thread the needle by picking strikes that have a significant chance of exercise because the premiums are the highest.
At some point in a month or three, they do get exercised. Then I own the stock....at which point I turn around and sell a call. The strike depends on how I feel about the stock in the time period of the expiration. The more I like it, the higher the strike. If it's just a company that's range bound and I'm not in love with it, the strike will be lower. If it gets exercised, then I simply restart the process by selling another put.
Now, if it's a company you want to own over the longer term and don't want your stock called away after a spike, you can pick a higher strike and accept the lower premium, or you can add another leg by purchasing a longer term call option. I've done this with NOK by buying Jan 2023s with $3 and $4 strike prices. That way if things get away from me by making a really fast run over the course of a week or two, (as happened a couple of weeks ago) I still have a longterm position to catch some of that upside beyond the strike.
Ok, so your first two paragraphs I’m familiar with, I’ve seen it called the wheel strategy. Because when you own the shares, you can turn around and sell calls. Then when those excercise, you start selling puts, and you can just keep doing it over and over.
Then your last paragraph is just owning a call option in the money that has a far expiration. By being deep in the money, the calls delta is decently close to 1, so it’s price change is similar to the move in the stock.
I'm just going to seek clarification for the others. It looks like you sold a June 18th call with a $14 strike price and collected $0.22 (per share) premium...which would be $22.
The only thing you have to keep in mind is that if news comes out and the stock price spikes to $15, and your option gets exercised, you're going to miss out on some upside because you'll only get the $1400 plus the $22.00 in premium. (less fees) If you just held the stock, you would have $1500. That's the downside of it. The temptation is to get angry about it. LOL. Just gotta tell yourself you're the insurance guy, not the investor....and remember that not every trade is a winning one. But...as long as you're making money, that's all that matters.
Yup, that’s correct. The move is more for income purposes and get my feet wet in this strategy. As you mentioned, the downside to this strategy is missing out on gains above $14. But my counter to that is buyers remorse. I agreed to the 14strike price, so I’ll be happy with getting that. But people always say they should have held on to something a little longer when they sell their stock. Sometimes that works out, other times people get burned because the stock falls. I’ve come to learned to set a target and be happy when you reach that target.
Theoretically, yes. But depending on the stock and the perceived upside, there still some significant time premium...even when deep in the money. That's where loving the stock comes into play!
I've gotta find the website, but there's a dude out there who has been doing this strategy for years. He's really got a system nailed down and has a screener for which you can subscribe. He has some interesting rules. Other than the obvious avoiding the ex-dividend date, he never buys on Mon or the first hour of Tues because of computerized trading, picks expirations between 30-45 days out, closes the position if the option loses 90% of the value, (or 80% before halfway to expiration date) and some other underlying quality benchmarks for the screens like market cap, option volume, etc.
I'll think of it in a few minutes...
Here it is. Lots of free stuff...aka videos and podcasts.
www.thebluecollarinvestor.com
The Blue Collar Investor | Learn how to invest by selling stock options.
Learn how to invest by selling stock options. Alan Ellman guides us through his system of covered call writing so you too can become CEO Of Your Own Money.
Nice potential downward stew simmering on the stove. Combo 99 .com "just buy anything new" that rolls out (now from your phone app) .... and 07-08 housing "there isn't a problem" market. Throw in crypto and dinner is served. Sure would be nice to see a flush so the trillions in cash can set a new floor for another 10 year cyclical bull market.
Lot more people calling for a correction in next 2-5 weeks and then stocks getting back on track late summer for an end of year push.
I could see that. I'm a little worried about a couple growth names I have but have the long term conviction to stay Gene Chizik "entrenched" for now
It is a strange market when people are ultra skittish on Apple, Facebook and all the big tech names - weird times
I'm not comfortable, obviously, with the trajectory of the market constantly supported by government intervention. It happens to some extent, but has been heavily influenced since 2012ish. If you manipulate it long enough, the consequences can be dire.
The market is driven by that now. Bad news = government intervention = market goes up, good news = less intervention = market goes down (generally). That's not a market based on real business innovation or health. Hard to bet against the guy with the bottomless pockets though, until it goes south, and oh boy, will it.
