Fellow Weary Travelers,
I'm just about excited as can be. We sit around, we Happy Campers, and talk and plan and think about our futures. Then we come across a grouping of stocks, that if used in the right way, just might provide the income to let us and you retire.
In my last blog, I started by sharing a little information on writing covered calls. It is a workhorse strategy. Picking up where that left off, I offer the following:
What could $20,000 do for generating cash flow for the month of October? First, ask yourself a side question, which may become the main question if you really think about it: What would you like this money to do? What amount of income/cash flow would you want it to produce? What would you need to retire on, or at least let a mother or father retire and stay home with the kids? Would $2,000 do it? How about $3,000? Oh, do you need more?
The market closed since I wrote the last posting. FAS closed at $13.20 and the Sept $13 calls were $1.08 X $1.13. But look at the October's. They were/are $2.18 X $2.25.
EK was $2.99 (We'll round off to $3 for this discussion). The Sept $3 calls were 22 X 26 cents and the October $3 calls were 54 X 57 cents.
RENN was about the same, and Bank of America was about the same as RENN. So, here we go.
We'll start with $20,000. Let's keep it simple. We'll buy 1,000 shares of FAS and 2,000 shares of EK. I like both of these, but you should do your own research.
The shares of FAS will cost $13,200. By selling 10 contracts of the Oct $13 calls for $2.18, we take in $2,180. Okay so far?
Now, let's spend $6,000 on the 2,000 shares of EK, and then sell the October $3 calls for 54 cents times 2,000 and take in $1,080.
TOTALS: We've spent $19,200, meaning we could keep the extra money in reserve, or even use it to buy a few more hundred shares of EK. We take in $3,260 for selling the options. I'll wait for you to absorb that number.
Okay, are you back with me? Could you live on $3,000 plus per month? How much time did this take? About 20 to 30 minutes. Could you make more if you watched and used the buy-back on dips and double-dipped for extra cash flow? Indubitably. Should you still employ protective strategies, like the stop-loss? Yes.
But what am I not writing is just as important as all of this. This cash flow is created with two trades. You could do this as well with other stocks. This exercise also assumes that you need to take out the money to pay the bills. What if you did not need to do so, right now? Think, you have $3,260 in profit. You could, with those profits, buy another 1,000 shares of EK (or another stock) and simultaneously sell another ten contracts, generating another $540. The net cash flow popped up to $3,800.
And now for the BIGGIE. What if you used margin. You've heard my caveats about margin, but let's think big right now, and take a little extra risk. If you used margin, you could have doubled up on all of this. Your $20,000 could have purchased $40,000 (In this case about $38,000) worth of stock, and your income would be double the $3,260 (plus another $540, maybe) and be around $6,480. Now can you live on that? This is all based on your original $20,000. You can start with less.
These are good questions. From my first days teaching seminars and writing books, my meme has been to help people get together a grouping of assets that produce monthly income. I still contend, $20,000 to $30,000 used the right way, will do the retirement trick. Think what you can do with all that free time and extra money!
I remain, your humble friend, Wade
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