The Wild Dad

Hi!

Sorry it took so long to write,  I just had sinus surgery a few days ago.  I’m breathing out my ears. 

The guy who taught about stocks  at Rhea’s Days is Chris Verhaegh.  It’s a very good course, I have it.  But sounds like that isn’t for you just yet. 

My grandmother and my mom taught me how to trade stocks , so I have been trading since I was 16  and I’m 39 now.

Here is what I recommend for both of you.  One of the wealthiest guys I know, who started with nothing growing up in Williamsport, PA.  No fantastic deals, no inheritance, nothing you could say was a lucky break for him.  All he did was save 10% of everything he got paid and then invest it.  That’s it.  Do that now. 

One of my favorite guys that talks about money is John Burley.  He chants that budgets suck and here is how he says to manage your household.

He talks about saving 10%, giving 10%, and paying down your debt 10%, and then live on the rest.  He calls it the automatic budget.  In a single income household in our economy that is really difficult isn’t it.  But that is it, simple. 

I really like Robert Kiyosaki’s books especially “Rich Dad Poor Dad” and “Cash Flow Quadrant”.  In those books his basic teaching is acquire assets that pay you a passive income.  Gumball machines, real estate, anything…

Here is one stock trading strategy that lines up with his thinking.  It is considered so safe by the IRS that if you can fog a mirror, they let you do it in an IRA.   It’s called the “Covered Call”.  You start an account with TDAmeritrade, OptionsXpress, or another brokerage of your choice. 

Start putting that 10% into that trading account.  Then when you have enough to buy 100 shares of a popular publicly traded stock that has options on it, that you like, buy it. 

We’ll use Netflix the mail order video rental company as an example, I don’t own it.  Ticker NFLX.  It closed at $25.86 a share last week. 

To own this stock you will need to have saved $2586.00 to buy it.  So that is a way off from here, but you’ll get there.

A “Covered Call” is an option that you can sell against the stock that you own.  Someone will pay a premium to buy the right to own your stock at a certain strike price.   Example:  The February $27.50 call option for NFLX is $1.20 or $120 for your one hundred shares of NFLX. 

You get to keep that $120.  If NFLX doesn’t go up in price to $27.50 by options expiration (3rd Friday of every month).  You keep your stock and the $120.

If however the stock goes up to $27.50 or more.  That option requires you to sell your stock to the option buyer for $27.50.  So you would make $2750 – $2586 (your cost) = $164 + the $120 premium.  For a total of $284 profit before commissions.  Then you would have to buy the stock again or another optionable stock to sell a covered call again for the next month.  

What if the stock goes down?  Doesn’t matter.  Say it went down to $23 a share.  You would then sell the next month’s $25 call and keep that premium.   If you could do this month after month for a year and averaged $100 per covered call.  You would make $1200 and still have your stock.  

There is more that needs to be studied about covered call options on your part to do this.  But this is one of my favorites, and my mom does this on the stocks that she owns.    Optionsxpress.com  has a great site,  click on the educate button to find out more.   Or go here:  https://www.optionsxpress.com/educate/investing101/why.aspx?sessionid

All the best, -Jim