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Thursday, January 6, 2011

Why I started this blog?

This blog is a place for me to share my investment ideas as well as anything else I find interesting, humorous, or just feel like venting about.

I read alot of blogs about investing and personal finance. The reason for this is that I want to be in control of my own finances rather than handing my money to some "professional" who will charge fees or just investing in mutual funds that don't truly have your best interest at heart. Hopefully, I can help myself while helping others learn to invest better. I mainly prefer to invest using combinations of equities and option strategies. This helps me boost my returns and manage risk.

I use strategies such as buy-write combos, selling naked puts, covered calls, synthetic combos, and other option strategies. Rarely do I just buy stock and hold it. This is because it is expensive, the risk is always the same, and its not as interesting.

Below is an example of the type of trade I prefer to do:
American Express (AXP): Current price 45.04

Buy 100 shares of  AXP: ($4,504)
Sell 1 Jan 12 $45 put:       $572
Sell 1 Jan 12 $50 call :      $330

Total cash outlay:             $3,602

This should only be done on stocks that you think are poised to rise, that you don't mind owning for the long-haul, and that you wouldn't mind owning at a lower price than it's at currently.

Risk: The risk is that between now and Jan 2012, AXP could drop and your short $45 put will be exercised. You will be forced to take ownership of AXP at $45 per share, but because you sold that put it will be like owning it at $39.28 ($45-5.72 put premium received). This will allow you to lower your basis by the amount of premium collected.

Reward: If AXP is >$50 on Jan 12, your stock will be be called away and you will received $5,000 and keep the $572 collected for the put sold and the $330 collected for the call sold. Your return will be $1,398 ($496+572+330) plus any dividends received. This is a 39% return on a stock that only needs to go up by 11%.

If AXP >$45 but <$50, your call and put will expire worthless, but you will still own the stock and can hold it or sell more calls against it.

Breakeven on trade: On original 100 shares its 45.04 - 3.30 call premium = 41.74

On the put shares, its the $45 strike price less the 5.72 collected or 39.28

The overall breakeven would be: $40.51 or 10% below the current price. This trade will can lose 10% and still be profitable. As opposed to just buying AXP outright, this seems like the much safer option!

Wednesday, January 5, 2011


Welcome! This is my blog I created to share ideas and learn ideas from others. I will mainly use it to blog about investing and personal finance, but also will blog about anything else as I see fit because it is my blog.