Well gang, I'm back ?
At this point, I want to fast forward to part three because I feel it is more pertinent to more individuals than part 2 - If anyone is interested, I will return to part two at a later date.
Now - Part Three - SUCCESS, STRESS and FEAR
There are basically three types of individuals that should benefit the most from my CC Philosophy and they are;
1. Individuals with several hundred thousand dollars in stocks or mutual funds who have been either retired, fired or displaced for whatever reason. In order to keep from going into what they feel is the only source of security left, these individuals find themselves forced to take whatever job is available no matter how much the stress. Little do they realize they are sitting on a Monthly Cash Generating Dynamo.
Story # 1
This is the story of a friend of mind who was relieved of his position as CEO of a young and upcoming company. The details don't matter, the fact is he lost his job at about age 60 with a little over $500,000 in mutual funds. He was forced to take a job working for his son in law's firm as a bookkeeper for about $2,500 per month plus insurance, sound familiar? Now I have been after him to take his funds, redeem them, buy a quality stock and write calls for income. He was fascinated to a degree but I could tell he felt it was just too good to be true so he continued to languish in his job that now had turned into a seven day a week trial not to mention the personal problems with said son in law. In the meantime, we would have lunch and play golf maybe once a week. All I ever heard was how bad things were financially and how he missed the income from his old job etc. etc. I kept telling him that he was sitting on a Monthly Gold Mine that would change his life but there was no way of getting to him so I just dropped the subject. Well, one day during a round of golf, I was getting ready to tee off and he mumbled something about a problem with his mutual fund. I stepped off the tee and ask what was wrong? He said that he had gotten his quarterly statement on his half million in holdings and that he had lost $8,000 over the quarter. I said no, you didn't lose just $8,000, you lost about $158,000 because that is about what I could have made you if you had let me take the money and write calls for those three months. Well as we all know, there is nothing like the loss of money in getting someone's attention and the attention of their spouse I might add. After that debacle, he did agree that he would redeem his shares and do what I suggested. We began by putting one half in GE and the other half with the exception of about $85,000 in Qualcom. That left us $85,000 to do what I knew would change his life. So last Monday I took $85,000 and combined it with full margin ( BTW, there is no such thing as a margin call and I will demonstrate this later) and bought 1,000 shares of CREE at around $163 and wrote a March call paying $16.50 or a little over 10% for a total of $16,500. Now keep in mind this man was working and worrying his ass off for the paltry sum of $2,500 per month. One of the happiest days of my life was Tuesday morning when I called to tell him what I had done and before I could get it out of my mouth, he said his checking account was as low as it had been in over five years. I said well, I got good news, you now have $16,500 that you can spend, deposit, eat or do anything else you want to with it between now and the third Friday of March because I wrote you a call yesterday. I talked to him after he had been to his bank and he was a different person and little does he realize, he AIN?T seen nothing yet. Now how many people do all of you know, whether it be your parents, your brother, sister or just a good friend who are in the same boat and who's lives could be changed at the drop of a hat by WRITING CALLS FOR INCOME on just a small portion of their beloved holdings? Believe me, there is no greater thrill than changing lives for the better.
The next individual we have is the person who has just made a ton of money in the market and is still working and worrying his ass off but is afraid to let go of the rope. When I say big money, I mean from one to several million bucks. You would be stunned at the number of these individuals which proves a tenet of mine. A fortune resting in the stock market does not relieve STRESS, if anything it can actually add to the stress. I take the liberty of using their names because they posted to me on the public thread but Alias and mtnlady fit this description. Just as Alias said, he has made a ton of money but is still in the STRESS TANK scurrying back and forth across the country proving once again the above mentioned tenet. Mtnlady?s problem is somewhat different but still entails a degree of stress, TAXES! What is the answer? Don?t sell and simply live out of margin but also cover half the shares. First of all, I cannot imagine people having that kind of money exposed in a market as unpredictable as this one could be and not have at least half covered. Remember Call Writing not only brings income if that is what you need but you are also technically short the market, meaning should your stocks fall in value, the covered shares will generally lose only a third as much as the uncovered shares. So, what I do is cover half my shares and let the other half just float through the Casino with no worry. Now for the income problem. Very simple, request your cash account be converted into a margin account if it is not already and get ready to live TAX FREE, that's right, you simply get your broker to send you a credit card and checks and live off of the appreciative value of the stock in your margin account, I did not say go on margin, I said just make your account marginable. You are not selling anything but when your stock goes up in value it creates what they call AVAILABLE CASH. With large accounts like this and a bull market like we have you can see how this is so feasible, I am stunned it is not written in a book somewhere. I for one have never seen it suggested. I have been living off of my appreciative value for over three years and saved untold taxes and on top of that I am not destroying my vehicle because it is appreciating. Now you must remember, the reason for covering here is for downside protection rather than income and therefore we would not write ATM ( AT THE MONEY) calls but rather, OTM ( OUT OF THE MONEY CALLS) because we want the down side protection rather than income and far out of the money calls give the best assurance of not being called out and therefore not creating a short term gain. ( BTW, there are ways of rolling out and creating short term capital losses even though our account is rising in value by buying the calls back at a higher price and rolling out)). We can get into that later. So, the answer for STRESS reduction with huge accounts that have dramatically increased in value. LIVE OUT OF YOUR MARGIN AND COVER AT LEAST HALF YOUR SHARES. Please, someone tell me why an individual that can make $200,000 per month can't quit his stress inducing job.
The third individual and the one that is most prevalent is that person with between $150,000 and $300,000 that is hoping against hope to get their million bucks before they lose what they have and in the meantime that wonderful life they could be having is just passing them by as they grow older. These people to me are about as stressed as the my friend I talked about and never would consider quitting their job for they know that the amount of money we are speaking of is very little right? WRONG, the lives of these individuals are the ones that are changed the most drastically. Think about going from a mundane average paying job, living from paycheck to paycheck to maybe $30,000 per month and with margin, up to $60,000 a month. Get the picture and guess what, there is no FICA, FUTA, SUTA or MED TAXES. Not bad uh? Remember options are taxed as ordinary or unearned income. Do you realize what even $15,000 per month will buy and what kind of lifestyle one can have. The key is there has to be a change in attitude. Remember, we are in a monthly billing capsule and almost all of our expenses are due during a monthly cycle. Do you realize how much and individual with $300,000 would have to have in a bank at say 5% to give the return of our call writing. $7,200,000. If someone had told these same frightened people that they had just won a Lotto with a net of $7,200,000 but that they had to leave it in the bank and draw 5% interest, they would probably quit their job tomorrow.
Questions anyone?
Voltaire |
