How I use options to supplement my retirement

Forced retirement!

Well, I guess in fact it wasn’t really forced, not at the moment, but the writing was on the walls. Surviving cancer in 08 and multiple other setbacks I decided it was time to retire in 2018 when they needed to drill into my skull and put a shunt from my brain to my stomach to keep from going blind. I retired from a state agency after 21 years and have a pension that pays the bills. My retirement is much earlier that I had planned and therefore the 401k and pensions didn’t have the chance to grow to full maturity. In the past year, I’ve experimented with many aspects of the financial market. Some successful and others not so much.

What I have found that works for me is selling naked put options. I’m currently up 30% in my account for the year. I’m going to be starting a new account in a few days (I’m actually managing for someone else who’s seen my results) and going to document the progress. I’m doing so to create a record for my heirs so if they decide to keep this up they can do so. I invite all to follow along and comment. However if you decide to invest your hard earned money, please seek the advice of a professional. I’ve warned you that I’m a brain damaged civil servant with no financial credentials

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Meetup!

I started a new group on Meetup.com about personal finance. Feel free to comment here about what you would like to see from the group.

What about Dividend Investing?

There are a couple of Dividend investing Guru’s on youTube. A quick search and you can find them and their army of followers. What do I think about the strategy. It is a good one, especially if you have 20 or more years to build them. It does seem like a lot of work though balancing and maintain the portfolio. However, I don’t think most people will be able to achieve results superior to what they would have returned in an above average mutual fund. Certainly in the early years the mutual funds will outperform, and the compounding through the years it’s a run-away.

If you don’t have a couple of decades to invest. Then dividend investing may not be right for you.

TD Ameritrade, are you kidding ME?

So, I have a TD Ameritrade account. It was a rollover from a Scottrade account. Anyone remember them. My account hasn’t been very active. I found that the commission were much better with Interactive Brokers for the way I trade. So I get the call…you know the one from the TD rep. Hello Sir, I noticed there has not been a lot of activity in your account lately, what can we do to help., blah…blah…blah.

Normally, I wouldn’t have given the guy the time of day. But it just so happened I had some dead time and he found it. He was a pleasant dude, so I didn’t mind giving my feedback which was that the commission schedule was to high and that my margin for options needed to be upgrade to be comparable to Interactive Brokers. He got my email and said let me get back to you.

I didn’t expect to hear back. But he did follow-up. He got me reduced option contract price (email if you want to know how much) and It was more than competitive with IB. So I did a couple of option trades and quickly ran out of margin. Puts you know, cash secured. So I wrote my rep back to see what he could do about the margin. He said I had to apply through the website, so I did and was denied just like the first time that I left. I’m a frequent trader in my main account. And they send me a form rejection letter. I don’t even know what to say.

7/9/2019 Getting Started

Sold Aug 23, 170 strike for 2.22.

$22 gain in account for the day. Reminder the goal is to beat the approximately 1% this was drawing in a bank account.

45 DTE @ 68% probability of Success

Yea, uh, so what does that mean. When initiating a new contract I’ll be looking for something with around 45 days to expiration. 45-60 is fine with me, it just depends on how all the stars line up. Also I would like a better than 50/50 chance that I’ll have a winner. So, I’ll pick an option that give me around a 68% chance of being out of the money.

Sound complicated? Not really. ThinkorSwim does all the work for you/me. In the trade tab when you are looking at the option chain, just display the Probability of Out of the Money column.

So if I wanted to sell a put at this very moment: V is at 176.44:

I would pick 47 days to expiration, a 170 strike price to collect a 2.12 premium with a 70.1% chance of expiring out of the money. This give you downside protection to 170 – 2.12 = 167.88. That’s an 8.56 drop. Remember though, I’m happy enough to have the shares put to me. I’m into Visa for the long haul. If I end up with shares, I just switch gears and start writing covered calls against them until they are called away, and I start all over. This is very much a rinse and repeat mechanical process

What is a naked put…

A put option gives the holder the right to sell or “put” 100 shares of the underlying stock per contract to the seller of the contract. The option chain determines the price (strike price), and date by which (expiration date) that this must happen. If the option is not exercised by the expiration date, the option expires worthless. A regular put is when you sell a put option and have the funds in your account to purchase the stock if “put” to you. A naked put means that your are using a margin account and need to balance more risk. I trade naked because my strike prices are well below the current market price. I take in less premium for these trades, but I’m far less likely to be assigned. I’m just picking up the crumbs from the fat cats that pass by. It works for me.

30%, That doesn’t sound like much!

So three times a week, I get to spend 4 hours in a chair at the dialysis center. During treatment I check my phone periodically just to keep up with the markets. So, I was chatting with one of the IV techs, you know the one sticking needles in my arm and she expressed some interest in what I was looking at and that she would be interested in learning more about investing. So, I point to several good youTube videos and invited her to bring back any questions and I would be happy to discuss the topic with her.

A little background, this is a very nice mid 50’s Pilipino who currently has little to no retirement savings. Fast forward to today and the topic turned to the markets. After a few minutes it was obvious that her financial understanding was a such a level that I would not be able to help her with stocks without some kind time investment from her. However, I didn’t just want to abandon her, she seemed truly interested and concerned for her financial future.

So, I brought up the topic of mutual funds. She had heard of them. It was something her 401k from work used, but she didn’t know much about them. So I started explaining that she could make smaller deposits (my recommendation for a brokerage account scared her off) on an ongoing basis and build wealth over time. I use mutual funds for some of my assets and had just recently looked up some yields. So the obvious next question from here was how much can I make? 30% from a top notch company, I replied.

30%, That doesn’t sound like much!

About that time someone else machine was alarming and our conversation got cut short. I do wish her the best, but just feel sad about the financial literacy in this country.

Tom Sosnoff

Just wanted to off a quick shout out to this man. Visit him on TastyTrades.com. The information is priceless. He is behind the creation of the ThinkorSwim platform and I use these tools daily. I have exceed my monthly state pension with my trading profits using techniques learned from his video clips from the show. Thank you so much, and hope this blog helps pay it forward….