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The Armchair Trader

 

The Armchair Trader

Updated 3-15-17

Courtesy of Yodi

As I've noted in my comments, I am looking for monthly and quarterly income. In contrast to the future traders on our board, I'm not looking at the progress of success every minute. With the armchair, Trader you can sit back and look at your progress once a month, while you follow your job and do other things.

In my examples below I have chosen a variety of stocks from REITs to banks and commercial companies. Regretfully in today’s market it can be hard to select stocks, mainly because so many are trading at the higher end of the scale, especially as we are facing rate hikes and market uncertainty. Phil is warning on a daily basis that the Trump balloon will pop.

Taking this in to consideration, make sure you are happy with any stock you chose and don't blindly follow my footsteps!

It is the object of this exercise to have a steady monthly income. I combine the stock dividend together with further out option plays. The option plays mainly consist of a call/put strangles or straddles. I also sometimes sell a covered call against a stock I'm holding, however using only calls reduces the monthly income accordingly.

With my trades, I'm looking for a combined monthly return on investment of 1.5 to 2% per month. If I invested $100,000, I'd be looking for a return of around $2,000 per month.

Each example below is based on 100 shares of stocks plus 1 option strangle or straddle (1 call and 1 put).

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Ashford Hospitality Trust, Inc.'s (AHT) was $6.23 at the close on 3-15. It's paying $0.12 cents quarterly or 7.7% per annum. That's a return of 0.64% per month.

Selling a Sept 5/7.5 put/call strangle @ $0.50 yields a return of 1.3% per month.

The combined monthly return (dividend plus premium) is 1.95%.

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ARMOUR Residential REIT, Inc. (ARR) was $21.75 on 3-15. It's yielding a 10.42% annual return, or $0.19 or 0.87% per month.

Selling an Oct 20/22.5 p/c strangle @ $1.40 yields a return of 0.86% per month.

The combined monthly income would be 1.73%.

***

Chimera Investment Corporation (CIM) was $19.59 at the close on 3-15. It's paying $2 per year. That's 10.21% annually or 0.85% per month.

Selling a Sept. 19/20 p/c strangle @ $1.55 yields a 1.29% per month return. 

The combined monthly income is 2.16%.

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Canadian Imperial Bank of Commerce (CM) was $88.60 on 3-15. It's paying $1.27 quarterly or 5.73% per annum. The return is 0.48% per month.

Selling a Sept. 85/90 p/c strangle @ $6.15 returns 1.11% per month.

The premium plus the dividend provides a combined monthly income of 1.59%.

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The GEO Group, Inc. (GEO) was $43.62 on 3-15. It pays $0.70 quarterly or 6.42% per annum for a return of 0.54% per month.

Selling a Jan18 40/45 p/c strangle @ $8.15 returns 1.79% per month.

The combined monthly income is 2.33%.

***

GameStop Corp. (GME) was $25.18 on 3-15. It pays $0.38 quarterly or 6.04% per annum for a return 0.50% per month.

Selling a Jan18 25/25 p/c straddle @ $6.75 returns 2.569% per month.

The combined monthly income is 3.06%.

****

Ford (F) was $12.53 on 3-15. F is paying $0.15 quarterly or 4.79% per annum for a return of 0.40% per month.

Selling a Jan18 12/12 p/c straddle @ $2.24 returns 1.71% per month.

The combined monthly income is 2.11%

***

Iron Mountain Incorporated (IRM) was $34.23 on 3-15. It's paying a $0.55 quarterly dividend, or 6.43% per annum for a return of 0.50% per month.

Selling a Jan 2018 32.5/35 p/c strangle @ $3.40 returns 1.34% per month.

The combined monthly income is 1.84%.

***

LTC Properties, Inc. (LTC) was $45.27 on 3-15. It's paying $0.55 quarterly or 5.04% per annum for a return of 0.42% per month.

Selling an Aug. 45/45 p/c straddle @ $4.30 returns 1.79% per month.

The combined monthly income is 2.21%.

***

Annaly Capital Management, Inc. (NLY) was $10.97 on 3-15. It pays a $0.30 quarterly dividend, or 10.94% per annum, for a return of 0.91% per month.

Selling a Jan. 2018 10/10 p/c straddle @ $1.58 returns 1.38% per month.

The combined monthly income is 2.29%.

****

Similar plays can be set up with PSEC, PPL, STAG, and STWD. On a $100K investment, you could expect around $2K per month. That's 24% annually! The option plays you already have in your pocket, and you just sit back and wait for the monthly or quarterly dividends.

****

Follow up:

My Armchair Trades do not discredit my Tree Planting plays. For example, using Ford as an example: 

Instead of buying the stock I set up a BCS by buying a Jan. 2019 8/12 BCS at a cost of $2.89. My potential max. gain is $12 – $8 = $4 less the capital outlay of $2.89, which is $1.11. That would be a 38.4% return over the less than 2 year period — if the stock is above $12 at expiration.

Here my breakeven is $10.89. If I add a leap Jan. 19 put to my play by selling a $12 put for $1.80, I discount my BCS to $1.09. I may end up with the stock at $12 with a breakeven of $10.20!

Here my capital outlay is $1.09. My gain is $2.91 with a cash outlay of $1.09 or 267%. This extra put sell makes quite a difference. 

Notes: 

Ilene asked what happens if a stock in a trade structured like those above falls ~20%.  

My answer: A 20% drop is quite a black swan for the relatively solid stocks I focus on. But let's look at it. Consider the GEO trade as an example.

Let's take a price of $43.63 initially and say GEO falls 20% to $34.90. From my option play, I received $8.15. $43.62 less $8.18 is $35.47. This is my breakeven point. So if GEO drops 20%, my paper loss would be $0.57 cents. Not too bad for a drop of 20%! I would also receive an assignment of the stock due to my $40 strike price put sale if GEO trades below $40 near expiration in Jan. 2018. Keep in mind that I received $4 for selling the Jan. 2018 $40 put. So my breakeven on the put sale is $36.00. My loss on the put sale is $1.10 if GEO is trading at $34.90. All in all, even with an occasional 20% drop in a stock, my results are not dramatically reduced. 


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  1. Hi Yodi,  I do appreciate this work and hope to start this 'one day' when my gold miners recover.  To track these trades do you use an excel file? Or can you manage well enough in the trading platform you use?