Options and bulletproofing investments
I have received many private messages about one of my previous posts about bulletproofing an investment. Some saying that I was BS. Here's a sample what you guys can do:
"You have my utmost attention.
I want to learn how to trade like this. Please teach me. I'll do whatever it takes.
I started investing 6 months ago with $6500 and have turned that into just under $20,000. But I know that was mostly luck, because I still know very little compared to what I need to know. I want to turn my 20K into much much more.
I live in NYC. If you do also, perhaps we could meet. Else whatever mode of communication you prefer is ok with me."
1st. you have to apply for options trading with your brokerage. Read and learn as much as you can about options. Good sites are: www.CBOE.com and www.ISE.com
Now, this is what you need to do:
It is April 2009,
1.- Say you buy 100 shares of XYZ at $60.95 (ps: I can show you all how to buy stock at a discount, sometimes as much as 20% discount).
2.- Buy to open 1 Sep 09 $70 put option at $13.00
3.- So now your total amount of investment is: $73.95
4.- But the level at which the investment is insured is $70.00...
5.- So, the total amount at risk is: $3.95 or 5.34%
Enter the covered call.
You now own an income producing asset, protected by "stock insurance".
6.- Sell to open June $70.00 call at $3.90
7.- New at risk picture: $3.95-$3.90=$0.05 or 0.07%
A situation like this I call it "bulletproof".
Say it is June, 19th 2009, expiration day and XYZ is trading at $80.84
8.-Let the call be assigned and sell the put: $70.00+$5.50=$75.50.
9.- And selling the call produced $3.90 so, $75.50+$3.90=$79.40
10.- So, total in $79.40 - Total out $73.95 = $5.45 or 7.36%
So, 7.36% in 3 months with virtually NO RISK. And you could have sold the calls 2 or 3 times generating more income, but in the end this example was about bulletproofing your investment.
Let me know if you have more questions.
ps: This is how I made $10,000 in April (today is expiration so today is when I close the month) with NO RISK !
ps: Nice run by SIRI so far, y'all should consider selling its leaps.
ps: This strategy is part of the SKETCH. You can download it for free @ www.poweropt.com. Y'all just need to sign up for the 14 day trial. Please keep in mind that I am not affiliated with them in any form and this is not a solicitation. I just liked their strategies.
