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BigIslandBum

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  • Differing Outlooks On The Market [View article]
    Emrick is unbelievably good!
    Jun 18, 2015. 04:52 PM | 2 Likes Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    Christine,

    Understanding options has never been the issue. I have used them in the past and learned they are purely a traders price gamble and don't fit in with my ownership of quality businesses.

    Regarding the rolling of the option in the example. That differential is $45, there is no disputing that. The actual comparable options available to cover that $45 (assuming volatility is similar in Jan 2016) would be something like:

    Jul 2016 545
    Jul 2017 620

    The Jul 2016 would be $15 in-the-money and the Jul 2017 would be $60 out-of-money. So it could take up to two years to just break even.

    Anyway, I see no sense in stirring this pot any longer. Moving on to owning quality businesses and allocating capital...
    Jun 18, 2015. 12:19 AM | Likes Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    leopardtrader,

    "So my opinion is based on extensive experience not from what I have read about. For example for you to say that sold option must be exercised by broker once the strike is breached is simply academic...it never happens in practice !"

    Your extensive experience should have lead you to know that roughly 17% options get exercised. If by "never" you mean 17%, then I guess you haven't misrepresented facts again and I apologize.
    Jun 17, 2015. 01:15 PM | 1 Like Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    leopardtrader,

    The reason I have commented on your posts is only in an attempt to correct some misleading statements you made.

    You have stated that "you will never have to sell your shares". If AMZN went to $560 (your example, not mine), you will have to buy back your option to avoid selling your shares. Doing so will cost you $4500 more than you brought in by selling the option in the first place. So either you lose $4500 or you invalidate your claim that "you will never have to sell your shares".

    You have stated that covered calls are "riskless". This is just patently false.

    There are new people on this website trying to learn. Spewing half truths and misrepresenting facts does no one any good.
    Jun 17, 2015. 12:01 PM | 2 Likes Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    Christine,

    Perhaps you haven't read all the comments that started this discussion. Here's what leopardtrader said in his example about AMZN calls:

    "Covered call: I sell 1 contract $500 strike options call expire Jan 2016 for credit $1500 or 3.4%.

    1. If by Jan. 2016 expiration AMZN price is less than $500 I will pocket my credit, part of my "dividend"

    2. If AMZN prices at $490 then ..I will still keep my "dividend" even when my stock has grown by $60,000. But I do not have any plans selling anyways.

    3. If AMZN prices above $500 say $560 ...I will lose good part of my "dividend" but hey my holding is now grown by $130,000 !.. So feeling good regardless.

    4. If AMZN prices $350 by then I will still keep my "dividend" but value of my stock dropped...Hey I am in this forever no shaking.

    5. Near or after the expiration I will write another call ..and keep doing this every six/three/one months as I like it.

    From the above it shows I will not sell my shares but keep generating "riskless" income similar to dividend from AMZN while potentially growing with the company which was the initial reason to buy into the stock."

    The important points are:

    "Covered call: I sell 1 contract $500 strike options call expire Jan 2016 for credit $1500 or 3.4%."

    Doing the math, you can see he received a $15 premium (the numbers I've been using are per share numbers, just like option premiums are quoted)

    I took issue with outcome #3 (ignoring his typo):

    "If AMZN prices above $500 say $560 ...I will lose good part of my "dividend" but hey my holding is now grown by $130,000 !.. So feeling good regardless."

    Now it's Jan 2016, a day before expiration of his option, AMZN is trading at $560. If he doesn't buy back his option, the option will be exercised and he will be assigned (aka he will get $500 per share for his AMZN shares + the $15 premium = $515 per share for something worth $560) Since he continues to say he never has to sell his shares, he will have to buy back his option. To buy back his option, he will have to pay a premium of $60 (per share) as the intrinsic value of the Jan 2016 500 is $60 and the time value is virtually 0. So his current balance on his AMZN option adventure is:

    +$1500 (sell the Jan 2016 500 call)
    - $6000 (buy the Jan 2016 500 call to prevent being assigned)
    ---------
    -$4500 (or $45 per share in the hole)

    Now, to complete the roll, he can sell another call. Just to break even, he will need to get a $45 per share premium. Using the same 6 month time frame, would require an option that is about $15 in-the-money. This option has a much higher probability of being exercised than the original option that was $70 out-of-the-money (maybe 3x higher probability). He could also sell an option similar to his original and get $15 premium and hope (a wonderful investing philosophy) he can make up his remaining $30 per share loss on future options. Assume he takes a conservative approach and sells a similar option for $15 premium:

    +1500 (sell Jan 16 500 call)
    -6000 (buy Jan 16 500 call)
    +1500 (sell Jul 16 630 call)
    --------
    -$3000 (or $30 per share in the hole)

    So a year later, he's spent $3000 on his "manufactured riskless dividend". I don't know about you, but my dividends are always positive.

    I agree with you, I would let the stock get called away and use it as an expensive lesson. (leaving $45 per share on the table just so you can collect $15 per share is expensive) Unwinding will still only net the same $515 per share.

    Hope this clears up what I have apparently failed to communicate. Options are not riskless and the only way you never have to sell your shares is if you never run out of money when things go against you.

    Best of luck.
    Jun 16, 2015. 10:58 PM | Likes Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    Christine,

    "Actually Leopard is correct. As you said, Bum, the option holder gets to decide. But it is very rare that the decision is to exercise an option. That's because there's still some time value left in the option. Exercising it wipes out that time value."

    There was no discussion about exercise frequency (something like 17% get exercised), only about who has the right to exercise. That is the holder the call, not the writer as Leopard states:

    " You are free therefore at anytime to assign or roll your options position. It is therefore my choice to assign my option position at any time I wished."

    That is plain wrong info to be spreading for people that don't have option experience. You write an option, you have 2 choices, hold through expiration, or buy it back.

    "I don't know where your information is coming from, but it doesn't make any sense in the world I live in. When I write (sell) a covered call, I look at the annualized percentage yield on the trade. I base that on the "yield if flat" outcome."

    Assuming you understand why rolling a $15 call premium at a time when the stock is trading $60 in the money starts you in a $45 hole... unless there's been a significant change in volatility of the underlying stock, the call premiums will be similar to what they were when he sold the original call. Therefore to get a $45 premium, he will need to select at date/strike combination that is roughly 3x the risk of the original call. In this case, risk being getting assigned and losing the stock you want to keep.

    Rate of return is exactly what you should be looking at but has nothing to do with the discussion about the inaccurate use of terminology and reckless use of "riskless".
    Jun 16, 2015. 05:29 PM | 1 Like Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    leopardtrader,

    Exercise:
    To exercise an option is to execute the right of the holder of an option to buy (for call options) or sell (for put options) the underlying security at the striking price.

    Assignment:
    Assignment takes place when the written option is exercised by the options holder. The options writer is said to be assigned the obligation to deliver the terms of the options contract.

    When you sell a call option, you have no control over the holders (buyers) right to exercise the option. If they exercise the option, you will be assigned. The only thing you are in control of once you sell a call option is whether you decide to hold it until expiration (and possibly be assigned) or whether you buy the option back to close the position.

    " If I sold the AMZN $500 Jan 2016 call and maybe next Month Amzn dips to $350 ..it is likely that the current value of that call could be near $0 ! Why would I wait till Expiration to assign it ?"

    That is not assignment, that is you buying the same option to close your short position.
    Jun 15, 2015. 02:29 PM | 1 Like Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    leopardtrader,

    "Your sold call will not be called...you simply roll it or assign. Your shares will never be closed and therefore you continue to hold your underlying forever !"

    Since you sold the call (aka you're short a call), you get assigned - it's not your choice, the owner of the call decides to exercise or not. You can roll the call before it's exercised (buy back your original call and sell another call for a different date/strike). Using your AMZN example, rolling the Jan 16 500 call when it's trading at $560 starts at a $60 premium so you're starting in a $45 hole ($15 - $60). To just break even and sell a call with a $45 premium, it will need to be 3x more likely to get exercised than your original call. Price gambling is fun! :/
    Jun 15, 2015. 12:45 PM | 2 Likes Like |Link to Comment
  • What The Great Recession Taught Me About Dividend Growth Investing [View article]
    "our plate is full--what do you suggest we drop so as to add the subject you want us to teach?"

    U cud drop en frm skool as it's nt getn mch uz. ;)
    Jun 12, 2015. 10:50 PM | Likes Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    Baltimore,

    "So, it would be the same result ($300) if I were to earn $300 in dividends from Procter and Gamble. Is that correct?"

    IMHO, yes and no. The total would be the same but if you're reinvesting dividends then not quite. The $45 is deferred to you until you file your taxes so you won't get the benefit of that 15% reinvesting at the same time.

    The favorable withholding can be found on the Nestle website under "When is the Nestle ADR dividend paid?" : http://bit.ly/1IAOsJa

    It would be wise to confirm all of the tax ramifications with your accountant or the IRS.
    Jun 12, 2015. 10:33 PM | 1 Like Like |Link to Comment
  • Shell No! I Won't Go Back To Rule-Changing Oil Giant [View article]
    Baltimore,

    "Same question, different company: Nestle, which has a 30% (35%)? Swiss withholding tax--how many of the $300 dollars in dividends actually reach my account? "

    If you're a U.S. investor, Nestle has a "favorable" withholding tax of %15. So, $255 of the $300 would reach your account. You could then claim $45 foreign tax credit on your next tax return if held in a taxable account.
    Jun 12, 2015. 03:32 PM | 1 Like Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    Jon Peter,

    "Why so defensive? Just adding my 2 cents (in page view counts) pointing out other, simpler, ways of growing wealth (sorry...total return). Anyway the simple portfolio of 50% XLP and 50% XLV rebalanced annually would net a CAGR from 2008 to present of 11.58% ..."

    I see the use of "simpler" from many ETF/Fund investors quite frequently. How simple is it to decide on which of the over 1400 ETFs and 9000 Mutual Funds to invest in? How simple was it to know you should rebalance annually vs quarterly, semi-annually, never, etc?
    Jun 11, 2015. 04:56 PM | 7 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 3 [View article]
    kevinconway,

    "How crazy does it get? One guy has all his money in F. He WILL have money to build his dream cottage in retirement and WILL have all the income he needs...from this one stock. So, If he was reading about the best stock in the world to own, clearly for him it would be F....and given the way his mind works, this could reinforce his misguided perception that he is correct in what he is doing."

    Perhaps you consider him crazy and misguided because of your personal beliefs and risk tolerance. Being different than most does not make one crazy or misguided.
    Jun 6, 2015. 02:53 PM | 1 Like Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    BoomBoom99,

    "Sounds complicated and would involve entering hundreds (maybe thousands) of transactions."

    You can track the NAV at any level of granularity you choose : daily, monthly, quarterly, annually. So the number of "transactions" you have to enter is entirely up to you. I track monthly and the numbers come conveniently off my monthly brokerage statement: Cash In/Out, Dividends & Interest, Realized Capital Gains and Value.
    Jun 5, 2015. 03:19 PM | Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 1 [View article]
    RAS,

    I believe he was referring to the imbalance in revenue by product. The iPhone is 69% of APPL revenue, up from 56% last year. As the iPhone goes, so goes APPL.
    Jun 4, 2015. 04:50 PM | 2 Likes Like |Link to Comment
COMMENTS STATS
500 Comments
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