Originally Posted By Mr X I didn't believe it myself. Then I did the math. It is TOTALLY possible (without any further investment other than your returns)... In fact, I expect to be a millionaire 5 years from now, since I'll be getting started shortly. Here's what you do. Open a brokerage account (I recommend Firstrade, it's cheap and not bad), and be sure to apply for approval of "Writing Covered Calls". Do some research about "Writing Covered Calls" on the internet to learn the basics. Be careful to chose stocks that look positive (there IS the risk of losing some of your 3 grand here, no question, but hey if you do you can always start over right?)... Write Covered Calls every month and reinvest your earnings (shoot for 10% ROI each time, TOTALLY do-able, maybe even more). If your stock is picked up, great. Buy a new one. Continue process for five years. Anyone wanna join me in the millionaires club here in 5 years? Let's keep this thread active and report on our results...I know I will. Anyone see a downside to this? Other than the obvious risk of your stock choice tanking, that is (which is a risk, but with careful research it's a calculated risk I believe). ;D <---waiting for SuperDry to chime in with some details that I missed, making this not the awsome thing I think it is.
Originally Posted By Mr X Couple of pointers I learned, by the way. It's best to Write your Call after a rally, where there is some excitement around your stock price potentially hitting the "strike" price and beyond. Look for stocks that are hovering around the strike price, you'll get the best percentage that way. This site was helpful and has a neat "calculator" thingy <a href="http://www.coveredcalls.com/" target="_blank">http://www.coveredcalls.com/</a> One more thing...you do NOT want to do this with stocks you are not willing to PART WITH, as this can be the end result (not always though). So if you've got a stock that is shooting up to the heights, you would NOT want to write a covered call and miss the opportunity for further gains (don't forget, you are agreeing to sell at the strike price!). HOWEVER, seems to me that any "hype" gains on a hot stock are made up for by the steady returns that continue month after month.
Originally Posted By Mr X Er...forgot something. TAXES. Ugh... Perhaps doing this in a tax deferred account of some kind is better? Financial experts, feel free to chime in with details (I'm pretty clueless about this stuff.
Originally Posted By Mr X p.s. anyone who's interested in more details feel free to email me (I don't wanna bore everyone with a long post about particulars). jammindave@hotmail.com
Originally Posted By peeaanuut really the best way to do it is to get a Roth. Plain and simple. Get a Roth, throw it on some long team spiders. Invest your max each year (like 4 grandish) and by the time you retire. You are golden. Simple and painless.
Originally Posted By Mr X I'm not willing to wait til I retire. (not that a retirement account is a bad idea, far from it)
Originally Posted By Mr X How much percentage would you get on that, Peeaanuut? Cause I just did a calculation, based on your 4 grand idea, tax free, at 10 percent interest, for 30 years. And, you make more money in 5 with my plan. And, using this formula over for 30 years (again, only the initial $3,000...nothing more invested) more than doubles your (rather expensive) plan...
Originally Posted By Mr X p.s. You can write covered calls in a retirement plan, by the way. It's the only form of options that IS allowed.
Originally Posted By friendofdd Mr X, I've known a few people who have done well with something like this. they don't invest all they have in it. They also do use some conservative investments for a "fall back' position. I've also known some who didn't do so well. Now when I see them, they ask me if I want fries with that.
Originally Posted By peeaanuut its so much risk involved Mr. X. Its a get rich quick scheme. They never work.
Originally Posted By Mr X "its so much risk involved Mr. X." The only risk is the principle you start with. And it's no riskier than any other stock investment. So, how do you figure it's a "get rich quick" scheme? Unless you think the whole stock market is a "get rich quick" scheme. Warren Buffet would probably disagree, but I digress. By the way, what do you think your Spiders are anyway? They're stocks, bro. You're taking a risk too.
Originally Posted By Mr X Well, anyway, check this thread in 2011 and I'll let you know if it was a "scheme" that never works.
Originally Posted By Mr X >>>Mr X, I've known a few people who have done well with something like this. they don't invest all they have in it. They also do use some conservative investments for a "fall back' position.<<< Of course, DD. If $3,000 was all I had, I wouldn't bet the farm on ANY one investment (except maybe a CD or something). Any stock transaction carries an element of risk. Mutual Funds too. This is simply an investment strategy. To call it a "get rich quick scheme" is incorrect (speaking to Nuut, not you DD).
Originally Posted By DVC_dad ROTH is great BUT: If you make over a certain amount of taxable income (I think it's around $100,000 a year) you can't get a Roth. Mr X has a good strategy but the problem is, there isn't an honest way to "GAME" the market... by GAME I mean there is no way to guarantee returns. There are no LEGAL ways anyway.
Originally Posted By Mr X Yes, of course there is risk. No question. Like I said, there's risk in any non-fixed investment. Thanks for mentioning it's a good strategy, though.
Originally Posted By SuperDry <<< ROTH is great BUT: If you make over a certain amount of taxable income (I think it's around $100,000 a year) you can't get a Roth. >>> This is true (income limits of $95,000/year for singles or $150,000/year for married couples for full eligibility, IIRC). But those not eligible for a Roth because they make too much can still invest in a Traditional IRA, which has no upper income limit. Even Warren Buffet and Bill Gates and their spouses can each put in their $4000 a year (well, $4500 for Buffet since he's over 50 ). Although it's less "sexy," the tax deferral until withdrawal at retirement feature offered by a traditional IRA gives most of the tax advantages that a Roth does for people under 50 (and hugely so for people in their 20's and 30's). It would be a mistake to not contribute to an IRA just because you were Roth-ineligible.
Originally Posted By SuperDry <<< Mr X, I've known a few people who have done well with something like this. they don't invest all they have in it. They also do use some conservative investments for a "fall back' position. I've also known some who didn't do so well. Now when I see them, they ask me if I want fries with that. >>> I think friendofdd gives very good advice here. I suppose that if you *just* invested $3000 and did so in a tax-deferred account, then the most you could lose was $3000, and that hopefully won't put you behind the counter at MosBurger. But I think people tend to get caught up in things like this, and if $3000 is good, then $9000 must be 3 times as good, and so on.
Originally Posted By SuperDry <<< Write Covered Calls every month and reinvest your earnings (shoot for 10% ROI each time, TOTALLY do-able, maybe even more). >>> Perhaps the biggest fallacy is that getting a 10% ROI a month for 60 months in a row is "TOTALLY do-able." As a general rule, the market is rather efficient at pairing risk with reward over the long term. To do what you describe above would require that you make a guess as to the future price of a stock such that you can make 10% in one month, and that you be able to make this guess correctly 60 times in a row. <<< Its a get rich quick scheme. They never work. >>> As a general rule, I think this is true. Certainly, I would start from this position on any suggestion that you could make a 313% annual return for 5 years running (10% monthly = 313% annually with compounding) until proven otherwise. So, what are the problems with what you describe? Just looking at it briefly, I can come up with the following: <<< If your stock is picked up, great. Buy a new one. ... So if you've got a stock that is shooting up to the heights, you would NOT want to write a covered call and miss the opportunity for further gains (don't forget, you are agreeing to sell at the strike price!). >>> But you're assuming that you can predict these things at least one month out. I would say that they are often UNpredictable. If there was any way to predict that a stock was going to shoot up a month from now, people would be buying it now, making the increase happen now. Almost by definition, when a stock shoots up suddenly, it's based on some surprise development that the market was not previously aware of, for if it had been aware of it, it would already be reflected in the share price. <<< Other than the obvious risk of your stock choice tanking, that is (which is a risk, but with careful research it's a calculated risk I believe). >>> That's certainly one of the risks. <<< Er...forgot something. TAXES. Ugh... >>> That's a big factor, and perhaps in ways you may not have considered. First, there's the obvious thing - you will owe taxes on all of this each year: - Let's say you start on Jan 1 of year 1, and on Dec 31 you're at the end of your 12th month. You've turned your $3000 into $9415 (ignoring expenses for the moment). You owe taxes on $6415. Let's assume you're in the 25% bracket, so you owe $1604. Either you take that $1604 out of your earnings, effectively reducing your return (if you do this every year by taking the taxes out at the end of the year, it will take you 6 years instead of 5 to get to your goal, again assuming a 25% bracket). - In the later years, you're going to push yourself above the 25% bracket just from this scheme alone, which will make it take even longer than the 6 years. - Do you want to hear a nightmare scenario? Here it is: Let's say you want to stick to your 5-year plan so you plan to pay the taxes out of other money each year on April 15 for last year's gains. Assuming a 25% bracket, the tax bill for each year would be $1604, $5032, $15790, $49548, and $155482. Not so bad until you get to the third year. But let's assume you come up with the money. Entering into year 4, you've made your $3000 original investment, plus $22426 in taxes paid. Now, on Dec 31 of year 4, you feel like you're sitting pretty. Although you don't have the $49548 to pay the taxes, you figure that you'll just sell some shares come April 15 to pay them. Then, when the market opens on Jan 2 of year 5, the stock you were in that month Enrons on you due to very bad surprise news. The stock goes to $0. You figure "well, it was a good run. I'm out my $3000 original investment, plus the $22426 taxes I paid. I'll just start over." But wait a minute: in Year 4, you had a taxable gain of $198193, and owe taxes of $49548 to the IRS. The fact that it went to zero on Jan 2 of the next year doesn't matter to the taxman - you're out all your money, AND owe Uncle Sam $50k. And notice that this is different from buying a stock on Jan 1 and having it go up 10% a month through Dec 31, then tanking on Jan 1 of the next year - in that case, either you sold at the end of the year thus generating a taxable event but also the money to pay the taxes, or you didn't sell, owe no taxes, and just have a $0 investment on Jan 1. But in the covered call scheme, the 10% gain is realized each and every month, thus tax is due even if from your point of view you leave the money fully invested in the scheme. So, if you try this, you might want to do so in an IRA account . At least that way you can't get stuck owing taxes on money you have since lost.
Originally Posted By RoadTrip Sorry, but I put this in the same class as he who shall not be named's investment in Orlando real estate. It might seem good now, but I would hate to totally rely on it for long term goals.
