Thousand Dollar Thursday
TDT: February 11th 2016
Re-Visiting some old favorites: Your TDT is up and ready to go.
We welcome you to another TDT. We’re glad you’re here.
We will look in on some old favorites, and some new. All of today’s trade will be for March, except on where the February calls are too good to overlook.
Once in a while we compare Writing Covered Calls to “Rental Real Estate.” The comparison is really good, but it only goes so far. Obviously stocks don’t depreciate like real estate, and usually there is great leverage in real estate, but the point is this: ASSETS PRODUCING INCOME.
I’ve made this point about the Mystical, Magical Truth About Money: Money works best when there is income from an outside source. Stores may have income from sales, but the stock itself (JCP comes to mind) does not make money on their stock. Yes, they may pay dividends, and that is wonderful, but with Writing Covered Calls, we, as the investor, force the issue.
Knowing what we know we don’t have to let our stocks sit there and do nothing. We can take in cash while we hold onto the investment. It’s all wrapped up in selling an option giving someone the right to buy our stock at a price we are happy with. An option purchaser buys the right to buy our stock. We are on the other side of the fence. We sell the option for cash. By selling we take on an obligation to deliver the stock. We get paid, sometimes quite handsomely.
The option investor takes a risk and has a “one-half of one chance” in three of making money. Not us. We make money by selling. They take the risk; we take their money.
An example: One of the trades in today’s TDT is explanatory. The stock is at $4.85. It’s moving up slowly. The $5 calls eight days from now (February 19th 2016) are 40¢ X 50¢. That is the bid and ask. We sell at the bid and buy at the ask, or we can place a different limit order. Let’s sell at the market for 40¢. We can do so in one-hundred share increments.
Let’s say we bought 1,000 shares. At $4.85, that would be $4,850, or $2,425 on margin. Our broker will put up one-half of the money to buy this stock. Pause. What would $2,425 make in the bank? What kind of real estate, or gold, or antiques can we buy, and more importantly, what kind of return can we get on this money? You’re about to see why we like Writing Covered Calls so much.
The $5 calls for the third Friday of February, 8 days from now, are going for the 40¢ mentioned above. 1,000 times 40¢ is $400. That’s right, 400 smackaroos. That’s cash in your account in one day. That’s money you can use to buy more stock, or just leave alone. It’s money you can pull out to pay some bills.
Oh, and if you want to play the March’s, they’re going for 80¢ to sell. That would be $800. That would be a five week hold. That’s $800 on $2.425.
If you don’t have JOB FREE INCOME, get it now. It’s FREE. Go to wadecook.org and put this knowledge to work for you.
And there is much more in today’s TDT.