My Path to Trading Business

[Martzee]

I believe in trading in the stock market. So, I started my own trading business. I will be posting my progress and insights here.

I started in my "intro" but I will continue posting here.

Here is my Intro thread: INTRO - On the path

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► TRADING PLAN

We are investors, not traders. We buy assets - dividend-paying companies. We buy dividend growth companies. Our plan is to hold those companies forever. We treat those businesses we are buying as our businesses. It is like real estate. People do not buy homes just to sell them the next day, or next month. People buy to hold their home for the next 30 years or more. We buy dividend growth companies for the same reason.

We buy dividend growth companies to generate income receiving dividends. We want our businesses to reward us for holding their shares and paying us for it. We reinvest the dividends to accumulate more shares. Our goal in accumulating shares of a selected company is to reach 100 shares of that business. All dividends and account deposits are used to accumulate shares.

Once we accumulate 100 shares of a company, we start selling covered calls. When selling covered calls, we sell to avoid our shares being called away. We deploy all hedging strategies to avoid the exercise of the calls. If, however, our shares are called away, we immediately start selling naked or cash-secured puts. We sell puts as a means of investment to buy shares, not to speculate or sell put just to bring premiums. We sell puts against companies we want to buy. Once the shares are assigned to us, we implement the Wheel of Fortune strategy by immediately start selling covered calls again.

All premiums generated from selling covered calls or puts are used to buy more shares of the companies we want to hold.

We only sell our companies when they no longer meet our requirements - reduce or suspend the dividend.

From time to time, we use other options strategies to generate income: poor man's covered calls, butterflies, covered strangles, or collars.

Poor man's covered call
We use this strategy against expensive stocks where we do not have enough capital to trade a standard covered call right away or in the near future and when saving money would take many months or years; usually indexes such as SPY, RUT, IWM, etc. We also use it against ETFs or individual stocks while accumulating shares of that stock.

Butterfly
We use this strategy as a directional trade. When we identify a strong trend in any direction, we may apply this strategy to limit our risk but reap a decent profit. For example, buying a call against SPY to participate in a strong trend would cost us $800 while the same butterfly would cost us $200. This limits our risk in case we are wrong.

Covered strangle
This strategy is selling an OTM put and a call against a stock which we want to add shares to our holdings and we already own shares. For example, we own 100 shares of a stock XYZ, and we are OK to buy another 100 shares. We sell covered strangle and our calls are covered by the existing position we already own and our put is covered by cash we have in our account in case we get assigned.

Collars
We may use this strategy (selling covered calls and use the premium to buy protective puts) if we see a need to protect our holdings and buy insurance. The covered calls will generate income for us to buy the puts.

Cost basis offset
Selling covered calls and puts, as well as other strategies, will be used to offset our cost basis. This is more of a psychological or mental offset. However, it helps to see it as having less risk in our stock and that we have purchased our shares for "free" (we used premiums collected when selling the calls and puts, although on many occasions we started collecting these premiums after we purchased the stock).

What about other options strategies?
From time to time we may use a different options strategy, for example, naked call, if we see it fit and we are prepared for any consequences from such trades. But, these trades will be very rare.

► REDUCING TRADING COST
Our other trading goal is to reduce trading costs. Therefore we picked a broker that charges low or no fees to trade. We think Tasty Works is the right broker for us. Tasty Works charges no fees to purchase or sell stocks and approx. 1.15 per contract of options trading. This allows us to accumulate our stock holdings buying a single share of the desired stock for no fee.

► DISCLAIMER
Note that all trades presented here are our trades and we post them for educational purposes. We are not licensed as investment advisors and we do not know your objectives and goals, so we cannot provide you with any specific investment advice. If you seek advice, contact a licensed advisor. Note, that trading or investing in stocks, options, or futures involves risk and that you may lose all your money. If you decide to mirror our trades, do it at your own risk and do your own homework.▼

 

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[Martzee]

The Wheel Strategy I trade

If you are familiar with this strategy, you can pretty much skip this post as you already know all the ropes. If you are a novice investor, this strategy may help you maximize your returns.

This strategy utilizes trading stocks and options. I use this strategy myself and it generates consistent returns.

Stock pick criteria

To trade this strategy I pick a stock that is relatively lazy (so doesn’t have too much volatility in it), trades mostly sideways or slightly up, pays dividends consistently (dividend aristocrat), and I must be willing to buy 100 shares of this stock (that means, I have to have enough money in my account to do so). The best candidates are usually utility stocks but any stock with lazy charts will do it. I also check options on that stock to make sure it has enough premiums trade.

Trading the strategy

Once you have a stock that meets your criteria, start doing the following:

1) Sell a put contract with delta 20 – 30 (that will determine your strike price), a premium of 0.30 ($30) or more, and 45 days to expiration or shorter if you can get the same premium.

2) Reinvest the premium and buy one share of the stock you traded (if the premium is less than the stock price, leave it in cash).

3) If the stock stays above the strike price at expiration, it will expire worthless, you keep the premium, and go back to step #1 above.

4) You may apply a 90% rule which means that you buy back the option once you achieved a 90% premium, e.g. you sold the option for 1.00 ($100) and buy it back for 0.10 ($10). This means you skip step #3 above.

5) If the stock stays below the strike price at expiration, you may attempt to roll it into the next expiration day and the same strike, or into the next expiration day and higher, as long as the roll is a credit roll. If this is not possible, let the option assign and buy 100 shares of the stock.

6) Once you have the stock, sell a covered call option. Make sure your strike is above your cost basis. For example, if you were assigned at $30 a share, make sure you sell the call with a strike price of 30 or more. Note, there will be situations when the stock drops so low that this will not be possible, but there are strategies to go around this. If interested, I can write about it in another post.

7) Reinvest the premium from covered call trade and buy another share of the stock. Also, in this period, you will start collecting dividends. Reinvest the dividends to buy more shares.

8) If the stock stays below your call strike price at expiration, the call will expire worthless and you can go back to step 6 above.

9) You can also buy the call back once you reach 90% profit on the call and sell a new call with the next expiration day, (i.e. skip step 8 above).

10) If the stock ends above your short call at expiration, you can roll the option into the next expiration and same strike, or the next expiration and higher strike as long as it will result in a credit trade.

11) If the roll as described in the step above is not possible, let the call assign, and sell your shares. If done as described above, you will make a profit on the calls and on the stock. Once you have no shares, you can go back to step #1 above.

That’s it. If done correctly, this strategy is almost invincible and you will be making nice profits. If you need more help, let me know.

 

[Martzee]

Starting small

It is hard to start investing and trading when you have a small account and only a few dollars in your account. Unfortunately, a small investor is doomed to take a larger risk than if you have thousands of dollars at your disposal.

Taking a $500 risk on one trade feels different in a $1,000 dollar account than in a $1,000,000 account.

And, you will need double or triple of patience than a large investor. I have seen many small investors, myself included, blowing up their accounts because of being impatient. They wanted to grow their accounts fast, took too much risk, doubled up on trades, and blew it all.

But it can be done.

I personally started trading by buying cheaper stocks. It is appealing to want to trade AAPL but if you do not possess at least $20,000 cash in your account, you can forget it.

I was always into dividend stocks. My philosophy always was that if I would be owning a stock I want to be paid holding it. If you own a good company that pays you a dividend, you get paid in good times as well as in bad times. If the market crashes and all your stocks go south, you still want to receive a check in your mail (well, virtual mail). With growth stock, you do not get this benefit. The growth stock is down and all you can do is to wait empty-handed for it to recover.

But which company is so good that it will pay you even when the markets crash? Not guaranteed, but dividend aristocrats are good candidates to start with.

I went to the dividend aristocrats list and picked People's United Financial, Inc. (PBCT). It is a dividend aristocrat that has paid and increased dividends continuously for 28 years and it was priced between $10 and $13 a share. The stock is optionable although not as great as more expensive stocks.

First, I started accumulating shares of this stock to gain confidence. Once I accumulated 100 shares, I started selling 50 DTE - 60 DTE covered calls. This takes a lot of patience because you have to wait 50 to 60 days to repeat the process. Many novice investors are not willing to do it. They engage in risky trades for which they do not have enough capital to handle the trade if it turns against them.

You take a credit you have received and buy 1 or 2 shares of another stock. I used PPL. Brokers made it easy today when you pay no commission to buy a single share of any stock. It was not possible just two years ago. When adding more cash into my account, collecting dividends and premiums, I soon could add put options towards my PBCT trades. At first, I went partially naked (I only had 50% saved to cover the put side) but I was selling a partially covered strangle now.

Soon I accumulated enough shares in PPL to repeat the process and started selling covered calls and naked to partially covered puts. I kept saving cash buying an ICSH fund that pays dividends and holds value in volatile times. If I get assigned to any of the stock I just sell the required portion of my ICSH holding to release enough buying power to cover the assignment. But with a single put or call, I do not have to do it. I roll the options. Rolling the single options, unlike spreads, is easy. Many times in 2020 my holdings were on a roller coaster yet I could lower or raise my strangle as needed to avoid assignment.

And cash kept rolling into my account. At first slowly, but soon faster and faster. You need to give your trades and stocks time to grow. Nothing will ever happen overnight. There is no quick rich strategy, no fast profits. Fast profits will come once you accumulate a large enough portfolio so you can afford to take riskier trades.

Don't rush it. Rushing it will lose you money. If you give it time, you will be surprised how quickly it all turns around and how fast your portfolio will go up despite the initial turtle moves.

 

[MJ DeMarco]

I believe in trading in the stock market. So, I started my own trading business. I will be posting my progress and insights here.

I started in my "intro" but I will continue posting here.

Here is my Intro thread: INTRO - On the path

---------------------------------------------------------------------------------------------------------------------------------------------------------

► TRADING PLAN

We are investors, not traders. We buy assets - dividend-paying companies. We buy dividend growth companies. Our plan is to hold those companies forever. We treat those businesses we are buying as our businesses. It is like real estate. People do not buy homes just to sell them the next day, or next month. People buy to hold their home for the next 30 years or more. We buy dividend growth companies for the same reason.

We buy dividend growth companies to generate income receiving dividends. We want our businesses to reward us for holding their shares and paying us for it. We reinvest the dividends to accumulate more shares. Our goal in accumulating shares of a selected company is to reach 100 shares of that business. All dividends and account deposits are used to accumulate shares.

Once we accumulate 100 shares of a company, we start selling covered calls. When selling covered calls, we sell to avoid our shares being called away. We deploy all hedging strategies to avoid the exercise of the calls. If, however, our shares are called away, we immediately start selling naked or cash-secured puts. We sell puts as a means of investment to buy shares, not to speculate or sell put just to bring premiums. We sell puts against companies we want to buy. Once the shares are assigned to us, we implement the Wheel of Fortune strategy by immediately start selling covered calls again.

All premiums generated from selling covered calls or puts are used to buy more shares of the companies we want to hold.

We only sell our companies when they no longer meet our requirements - reduce or suspend the dividend.

From time to time, we use other options strategies to generate income: poor man's covered calls, butterflies, covered strangles, or collars.

Poor man's covered call
We use this strategy against expensive stocks where we do not have enough capital to trade a standard covered call right away or in the near future and when saving money would take many months or years; usually indexes such as SPY, RUT, IWM, etc. We also use it against ETFs or individual stocks while accumulating shares of that stock.

Butterfly
We use this strategy as a directional trade. When we identify a strong trend in any direction, we may apply this strategy to limit our risk but reap a decent profit. For example, buying a call against SPY to participate in a strong trend would cost us $800 while the same butterfly would cost us $200. This limits our risk in case we are wrong.

Covered strangle
This strategy is selling an OTM put and a call against a stock which we want to add shares to our holdings and we already own shares. For example, we own 100 shares of a stock XYZ, and we are OK to buy another 100 shares. We sell covered strangle and our calls are covered by the existing position we already own and our put is covered by cash we have in our account in case we get assigned.

Collars
We may use this strategy (selling covered calls and use the premium to buy protective puts) if we see a need to protect our holdings and buy insurance. The covered calls will generate income for us to buy the puts.

Cost basis offset
Selling covered calls and puts, as well as other strategies, will be used to offset our cost basis. This is more of a psychological or mental offset. However, it helps to see it as having less risk in our stock and that we have purchased our shares for "free" (we used premiums collected when selling the calls and puts, although on many occasions we started collecting these premiums after we purchased the stock).

What about other options strategies?
From time to time we may use a different options strategy, for example, naked call, if we see it fit and we are prepared for any consequences from such trades. But, these trades will be very rare.

► REDUCING TRADING COST
Our other trading goal is to reduce trading costs. Therefore we picked a broker that charges low or no fees to trade. We think Tasty Works is the right broker for us. Tasty Works charges no fees to purchase or sell stocks and approx. 1.15 per contract of options trading. This allows us to accumulate our stock holdings buying a single share of the desired stock for no fee.

► DISCLAIMER
Note that all trades presented here are our trades and we post them for educational purposes. We are not licensed as investment advisors and we do not know your objectives and goals, so we cannot provide you with any specific investment advice. If you seek advice, contact a licensed advisor. Note, that trading or investing in stocks, options, or futures involves risk and that you may lose all your money. If you decide to mirror our trades, do it at your own risk and do your own homework.▼

Thanks, it's very similar to my Paycheck Pot strategy. I buy dividend stocks and sell calls and puts on them.

In 2020, this strategy fared OK. My regular option trading strategy did fabulously better, and at far less risk ... didn't run the #s, but if I had to guess, I did 100% gains on risk. Of course, 2020 was a nutzo year.

Do you know from what money companies pay the dividends? I guess you have no clue. I can assure you, this is not how dividends are created, declared, and paid out to the shareholders. Please, educate yourself before you make yourself a fool.

Technically he is correct. Dividends, when paid, are a wash. Company issues $10 dividend, market maker reduces the stock price by $10 -- the net net is a wash. Worse, you get taxed on the dividends, so one might argue, it is a net negative since the stock was still a hold.

What Really Happens To A Stock Price On The Ex-Dividend Date

Clearing Up Confusion Over Dividend Dates

groupssa.com

 

[Martzee]

2021 is over. What about 2022?

A lot of people predicted the stock market to tank. Youtube is full of videos about incoming "mother of all crashes". Media are posting articles about the end of the bull ("because this is the longest bull ever so it must end").

This is all a big pile of crap shitted over the internet by uninformed or sensation chasing idiots.

First, this is not the longest bull ever. The longest secular bull ever took 27 years. We are barely in the middle of that term. Check the charts for yourself. Step away, open 100 years chart and draw lines. you will clearly see two periods of going nowhere and two periods of running bull in between. We exited the period of going nowhere in 2013. Now we have 27 years (from the bottom in 2009) to go.

Earnings - in 2021 the S&P500 companies reported record earnings growth ever posted in the history of the US - 45% This is a stunning number! How can a market crash when businesses did so well? And estimates for 2022 and 2023 are also very positive. Some analysts started admitting that those estimates are probably very conservative and might be revised to the upside. The markets follow earnings. In the real estate world, location, location, location, is the mantra. In the stock market, earnings, earnings, earnings, is the mantra for success. Watch earnings estimates and you will know.

And what about the FED, inflation, interest rates, and Omicron? All bullshit. The interest rates were historically good for the stocks. Inflation will drop (companies are already marking down prices because consumers are reluctant to pay the high prices, soon we will see deflation and oversupply. The retailers were grossly undersupplied due to covid. It is now going away and they are (mistakenly) oversupplying themselves.) Omicron? According to doctors no worse than a common cold. Tapering? Yes, that may shake the valuations, but it will not shake the bull market. All it will do is change the trajectory of the market to the upside. Maybe a bit slower or not a sharp up line what we have witnessed in the last years, but still up. Why? Earnings, earnings, earnings! That's why!

Will there be crashes? Of course, there will be crashes. We will see crashes 5%, 10%, 20%, or even 50%. But it still will be a crash within the secular bull market. Look at the chart below.

Can you see the secular bull market from 1970 to 2000? Was it a smooth move up? Of course not. look at the trouble in 1987. Right now, a blip. Back then? End of the world. People will always panic and sell everything over anything. End of the world - panic. Omicron - panic. Some distant war - panic. Stinky fart in the air - panic. And media will make sure to tell us after the fact why we need to panic.

But if you learn the ropes and how to read the market, you will be laughing and ignoring all the noise.

To me, 2021 was an excellent year. Not only I have achieved a 400% growth of my portfolio, I learned a lot of important stuff on the way up. I learned that earnings are really extremely important and how to find that information and use it. I also learned how to use VIX and VIX futures to gauge market health. Is the selling just a noise to ignore or a dip to respect? VIX term structure will tell you. I also learned patience and make my trading mechanical as much as possible. Avoid any second-guessing. The market says "A", your response is "B", no other way available. No second-guessing if it should have been "G".

I started two new strategies that I will develop in 2022.

My original strategy was to accumulate shares of high-quality dividend growth stocks and monetize those positions by trading options around those positions - strangles, puts, or covered calls. I will keep doing this in 2022 as this is my big money maker.

But I wanted more growth and I found and learned about HFEA strategy. It is a semi-passive strategy that leverages growth and protects the downside. I dedicated $15k of my portfolio to this strategy in November and December and I will develop this strategy in 2022.

I used to trade SPX in the past but got burned badly several times. I still liked the strategy but stopped trading it and but I spent the whole year 2021 learning a better way to trade SPX. I think, I found and established a good strategy for the trading of put credit spreads to generate income.

I will post my results on my blog (see the links above). I hate to promote my blog but on the other hand, I will be happy if you stop by and give thumbs up (or down). Why I am posting these reports? The primary reason is to keep me accountable. If I deviate or start doing something else, writing my weekly report will reveal it and I will have to admit I was doing something I shouldn't have to. And people here in this forum and readers of those reports can help me to keep myself in check by asking questions or discussing the strategies. In the end, we all will learn from it.

And if you think that trading stocks or options is your niche you want to learn and do (as it is my passion to develop for a living), do not hesitate to ask. I am open to helping others to learn what I have learned.

 

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[Martzee]

So how do you plan to grow this then? So far my understanding is that you’re just trading with your own money, and Im sure you realise that unless you are really exceptional, you’ll have a hard time making consistent profits and scaling to millions. I know traders who are making up to $10K/day but it takes an extreme amount of dedication and effort. Sort of like winning poker tournaments... it can be done, but you simply need to be the best...

A business on the other hand simply needs to provide value, which is much more reachable for the average person and easier to scale.

I am not sure if your comment was to me but I guess it was.

If you go to the very top first comment of this thread it clearly spells my trading plan and it clearly indicates that I buy dividend stocks to collect dividends (and no these are not ATM-like withdrawals but portions of earnings of those companies paid back to the shareholders and if a company is profitable, see JNJ as an example, it is a perpetual income for you without moving a finger) and on top of that I monetize those positions trading options around those positions. That allows me to grow the money in my account on average 45% per year without dividends (2020 was exceptional as I achieved 419% growth). No need for customers, no need for suppliers, marketing, sales pitches, overhead expenses, etc.

If I stay with 45% compounded growth and $20,000 the portfolio will turn in $890,000 in 10 years and will pay me $46,680 dollars in dividends annually (initial yield 5.52%, dividend growth 11.37%, YOC in 10 years 31%) on top of the options premiums which as of today are about $1,500 a month.

I believe this is a good enough income strategy and growth without the hassle of "finding a value" to sell to people. There are 300 million people in the United States, how many can make it, and become a successful entrepreneur? Creating a functional business that will make you millions is a damn hard job. There are tons of dreamers around who think they will come up with some app and sell it in Apple tunes and become rich. Only a handful of them will make it, the rest will end up wasting their time.

I am an engineer by profession, I had three businesses. Very successful businesses providing HVAC control systems for the food industry. Yet I had to deal with employees, not enough electricians, good programmers but not understanding the point of what needed to be done and how the system must work, late deliveries, complaining employees, change orders from subs trying to milk you on every nut and bolt missed on the plans, demanding clients who hired you to help them and then didn't listen to you but blame you for their problems, and so on; tons of troubles I no longer want. And I do not want to go back and downgrade myself to me 20 years ago starting again thinking what to do people may like just to find out after hours and hours of work that nobody gives a shit. Trading in the market I only need a computer, good knowledge of how stocks and options work, initial capital, a computer, and a good brokerage account. I can trade from everywhere and I do not need people to listen to their whining about anything and everything. I am no longer 20 years old to handle this.

To conclude, even AAPL grows at 30% annually... if I can grow my account 45% annually (excluding dividends) I do better than Apple

And if Warren Buffett, Jesse Livermore, Ben Graham, Nicolas Darvas, Dan Zangler, Rick Langer, Joshua Belanger, and others could do it, I can do it too. And I started this thread as a challenge to myself to post my path in the trading business (not gambling buying hot flying chimera stocks like Tesla or Bitcoin with no underlying value praised by many ignorant from-yesterday-to-be-traders boasting about it on social media) and prove myself that it can be done.

 

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[Martzee]

2021 is over. Here are highlights of my dividend and options trading during the year:

Net-liq value growth: 409%
Options income: $62,026.00 (+59.27%)
Dividend income: $2,785.53 (+259.98%)
Stock holdings value: $133,469.78 (+634.17%)
CAGR since inception (2014): 572.13%
Portfolio alpha: 52.97%
Portfolio yield: 4.70%
Portfolio dividend growth (3 yr average): 8.80%
Details can be found in my regular weekly investing and trading report.

 

[Martzee]

Trading the wheel strategy

I have noticed people seem to understand the wheel strategy incorrectly. People sell cash-secured puts in the wheel strategy waiting to get assigned. That is not right. You should not get assigned. You should pick stocks that will not get assigned to you. An assignment should be a rare occasion.

It can happen of course. The stock may have some violent run and you never know what reasons the put buyer had to assign you his shares. Thus, you must always be prepared for assignments although you do everything you can to avoid them.

So, do not wait for the stock to get assigned to you. Actively roll the position up or down to keep your strikes out of the money. Yes, sometimes your puts (or calls) will get deep in the money and you need to be rolling OTM slowly and in many steps (trades). I usually move the trade one or two strikes up (or down) to get closer to the money (and eventually, one day out of the money).

This happened to my covered call against my IWM LEAPS. My covered call got so deep in the money that rolling it for credit is difficult. Yet, I monitor the position closely and every time the IWM dips, it also offers an opportunity to roll the call higher.

But there is another strategy I use to avoid (or at least mitigate) early assignment. I roll the position far away in time. Normally, I trade 10 DTE to 60 DTE trades. But when the stock gets in the money, I move the expiration to 90 or more days and I keep it there. It is a long enough trade to prevent people from assigning the position to me early. It still may happen but the odds are low.

And another way to be able to roll is, of course, trading strangles. With strangles, the opposite side of the trade can help you to roll the busted side. If your puts get in the money and rolling it down is difficult, your call side will collect a premium to help to offset the cost of the put side roll. This will allow me to roll the entire trade up or down as needed.

 

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[Martzee]

Something is missing from the discussion of dividends vs growth that seems critically important. Correct me if I’m wrong, but...

If a stock does reinvest its earnings in lieu of paying a dividend, the idea is to grow the company instead. This is great because it can grow unrealized gains!
But... if the stock is relatively unknown, unpopular, or just not all that interesting or hyped up in the news, there is a chance that this stock’s price won’t change much to reflect what management is doing to grow the value. Of course, that makes it a prime “value” stock, but as we all know, “markets can remain irrational for a long, long time.”

What I’m getting at is that share appreciation is NOT guaranteed. At least with a dividend (one that is supported by a healthy payout ratio and other fundamentals), you are getting an actual return on your money!

This isn’t to mention the fact that some companies simply can’t reinvest into more growth. The main point I’m making is that dividends are the best option in some cases.

Let me know what y’all think. I’m trying to learn by joining this discussion but this is where I’m at on growth vs. dividend (obviously less taxes are nice if you can count on share appreciation - I just don’t think you can ever count on that)

You are absolutely correct. At some point, a company becomes so big and makes so much money that they have no more use for it. They did everything they could - reinvesting back into the business, acquisitions, buybacks, assets purchasing and yet they have so much cash that they decide to return that investment back to the investors. While high-flying stocks like Tesla may feel great today and everybody is a king who invested in it a few years ago but the stock price and company valuation are two different things. Tesla's price is not supported by its revenue and ability to make money. Today, Tesla is a king, tomorrow Elon screws it up NIO will come up with something better and outperforms Tesla and its price will collapse with no mercy to all believers. There is no guarantee. And that is valid for all stocks. There is absolutely no guarantee that when you buy today and it appreciates tomorrow. So it is a bet no matter how you look at it. And if I have to bet my money, I want to bet on something that generates revenue and growth, and while I am waiting for that appreciation, I want to be paid for it. Not 20 years from now but immediately.

 

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[loop101]

Stock dividends do not make you richer. Its the same as going to the ATM and withdrawing money out of your bank account.

I thought stock dividends were a way for a company to share profits with its owners. If a company never pays dividends, and you will never have enough stock to control the company, why buy any of its stock?

If the answer is because the value of the company will go up, then again, who cares how much it grows if you will never have any influence over it or share in its profits.

 

[Guest-5ty5s4]

I thought stock dividends were a way for a company to share profits with its owners. If a company never pays dividends, and you will never have enough stock to control the company, why buy any of its stock?

If the answer is because the value of the company will go up, then again, who cares how much it grows if you will never have any influence over it or share in its profits.

Exactly. If there is never going to be any profit paid to investors, it’s only speculation, not investment.

If your investment demands that the next person buy it from you at a higher price than you paid for it, then you are speculating.

If it produces a measurable ROI, it’s an investment.

At least, that’s what I gathered from reading Benjamin graham for stocks and reading lots of different authors about real estate.

 

[Martzee]

I tried to start trading on the stock market in 2015, but it didn't work out. My investments did not bring me an income and I faced a big loss, so I had to look for a job through which I could earn enough money for myself and for my family. I learned the lesson that before you start trading on the stock market, you need to earn a separate amount for it, that if you spend it, it will not affect your life. Nowadays I try to learn more about the stock market in order to earn as much as possible, but the problem is that this knowledge is outdated. Now, during the pandemic, it is very difficult to buy secure stocks as they can lose value even faster than before. Maybe someone knows a really good strategy that can go with the current situation in the world.

I understand what you are saying. I had the same experience in the past. But I was not trading stocks, only options and I was trading options using SPX as underlying. So I was making money but I was also losing them as fast as I made them (sometimes faster).

But I learned a lesson on how to do it and build a portfolio for a living (well, at least, I hope I had).

My strategy is to be buying high-quality dividend stocks (dividend aristocrats) and accumulate enough that I will have enough income from dividends no matter what a stock is doing. A great example was JNJ in the 2008 crisis. The stock lost 50% of its value yet they continued paying their dividends and even increased them. And there were many other stocks in the same category. So, my theory is, if I accumulate enough stocks in this category to pay me for example $90,000 a year when the market is high as well as when it loses 50% of its value and I still receive my dividends, then I really do not care what is going on out there.

On top of that, since I have substantial knowledge of trading options, I decided to trade options against these stocks using a wheel strategy. In my opinion, the wheel strategy is pretty much a win-win strategy (of course if done correctly). So I started selling puts against these stocks (later on I started trading strangles) and have enough cash or shares for assignments. I have peace of mind now not worrying about the stock volatility. I roll the options as much as possible up or down as needed and if I cannot roll for a credit I let it assign. And I have enough cash (or shares) to let the assignment go without ruining my account. And I reinvest all proceeds to buy more shares. I keep reinvesting the dividends and premiums. It is not a quick-rich scheme (as many people believe or hope for) but still substantial growth compared to just passive investing (like what you would normally do in your 401k account).

Thanks to this strategy, I feel relaxed, I was able to navigate through the market 40% crash in March 2020 without losing anything, and in fact, I was buying more shares when they were on sale, my account is up 50% for 2021, and my options premiums average $3,000 a month in 2021.

I plan on accumulating until I have enough to have a sustainable income from dividends and options. I will accumulate a 1-year salary saved in a money market account as reserves and then I will be ready to "retire" and trade for a living. And if something bad happens, I will have a 1-year salary saved to eventually sustain any losses and find a job, but I do not expect that. I feel quite confident that with this strategy I will be able to navigate through good and bad. The goal is not to overdo the trading and not to over-extend the trades beyond cash security or shares coverage because if you trade more than what your cash or shares allow you, you are forced to close the positions due to margin calls and for a loss. Many times, a substantial loss. I learned that the hard way.

 

[Martzee]

There are misconceptions and misunderstandings about the dividends I have seen in the past from people. Many investors do not want to buy dividend stocks and prefer growth stocks because they consider a 3% yield and sacrificing the stock growth not enough to bother to invest in these stocks.

Another claim is that in order to achieve let's say $90,000 annual dividend income, an investor would have to accumulate a $2.5 million account at current yields, and that is not realistic in today's world since it would take a person over 30 or more years to do.

Both claims are only partially valid. None take into account dividend growth.

If you take into account the dividend growth, the time and amount needed to accumulate shrinks significantly. For example, my current portfolio has a current dividend yield of 3.52% and dividend growth of 5.91%. With these numbers, the future yield on cost will be:

8.75% yield in 10 years shrinking the capital requirements to $1,028,571 portfolio value
31.26% yield in 20 years shrinking the capital requirements to $287,907 portfolio value

and so on (This is when you are reinvesting all dividends and not adding new money. If you start adding more of the new money, it will grow even faster). And, I speed up this process with options income. That was always my dream and goal in investing and trading - generate enough income that can be invested to buy more shares that would generate even more income. At some point in the future, I should accumulate enough income to start paying my bills on top of the accumulating of more stocks.

But yes, you have to give your portfolio time to work it out. If you are looking for a faster way to get rich, then this probably is not for you.

 

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[Martzee]

Another great month investing in dividend growth stocks and trading options around those positions.

Our stock holdings grew by $7,732.15 in August.
We made $6,133.00 in options premiums and received $780.09 in dividends. The account started snowballing its income and growth.

More details about the account performance, our plans for the next month, and market outlook here:

2021 Week 35 investing and trading report | Hello Suckers ...

August is done! Another best month investing and trading dividend growth stocks and options. This month turned up to be absolutely the best as far as Net-Liq growth. This month, our net liquidating value jumped up by a whopping $7,000 dollars! This week we lost -$48.00 in options premiums. It...

hellosuckers.net

 

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[Martzee]

October 2021 was my best month generating income trading options. I made $8,721.00 in premiums. My account net liquidating value increased by a whopping $14,825.36 this month. Dividend income was in line with the goal. The total account growth in 2021 reached 357.15%.

Read the full weekly report here:

2021 Week 43 investing and trading report | Hello Suckers ...

October 2021 is in the books and it was our best month ever. As you will see in this investing and trading report, our net-liquidating value increased by a whopping $14k, our premium income, selling options reached almost $9k and we met our dividend goal by receiving $250 this month. If all...

hellosuckers.net

 

[Martzee]

really goood insight about the stock market
i trade FX, Crypto, Index, Metals and Energy and i'm soon moving to Stocks and ETF

i use a strategy base on trend following, a system with solid Money Managements rules

1st question is: What are you rule for Money Management and Risk Allocation in your trading strategy
2nd question: Can you give us insights about trading business
3rd question: how can you protect yourself when trading Other people money, what are the best legal form for your company, and who you should hire as your staff, some people hire trader with a profitable track record to give them money, and some hire Programmers and Scientistic to have a Quant approach

Answer 1)
I have Cash management rules described here: Cash Management | Hello Suckers ... Unfortunately, last year when the market was rallying like crazy I broke the rules and went 100% invested. This year, that greed is hunting me down. But I am able to manage those trades and wind them down without losses. But it is really giving me a hard time and sometimes I feel like I want to give up.
My strategy is pretty much simple: accumulate dividend-paying stocks and sell options around those stocks to generate additional income on top of the dividends. Plus I trade naked options as well. Then I use the income and reinvest it. The goal is to generate enough income to go full-time (I am still in the accumulation phase). My options trading is already generating $8k to $10k monthly income but I am reinvesting it still because it is still all the account brings in and there are no reserves. If I stop trading, there will be no income (the dividends bring in only $500 a month, so that is not enough).
This year would be a "go back to work" year if I decided to retire from the 9-5 rat race and live off of the trading only because although I made about $35k in options this year, I cannot take that cash out due to depressed margin requirements. That means I would have no income.
So I was thinking about how to overcome the hurdles of bear markets to still secure an income when I will not be able to take money out. I remembered once I read a blog post from a guy who decided to retire or start his own business when he quit his job with a severance equal to 5 years of his salary. This was my answer to my question. So I found a cash equivalent fund (that pays about 1% dividend yield but holds value - during this bear market it lost only 0.4%) and I plan on saving at least one year of my salary in this fund. I started last year, but then I thought it was a waste of cash making nothing, so I liquidated the position and reinvested it. Today, I am kicking my a$$ for it and I restarted to rebuild that cash reserve. Once this bear market is over, I should be able to rebuild the cash reserves within a year and then dip my toes into semi-retirement (meaning just trading for a living but still keeping my job before I get confident that I can make it).
If everything goes to plan, I expect to go full trading in 5 years.

Answer 2)
Not sure what you are looking for but I trade as a business for several reasons. One reason is that when I switch from 9-5 to full-time trading, I still want to keep the routine of having a regular job. That will also help in qualifying for a TTS status with the IRS. As a person (sole proprietor) you will get challenged. As a business, it will be less likely to get challenged by IRS. And the TTS brings in a whole plethora of tax advantages that you will not get as an investor. The second reason is the tax advantages you get as a business compared to a sole proprietor already (even without a TTS).
Then I write a blog about investing, do the research, etc. At some point, I want to start hiring people to help with it. I also have planned what to do next when the trading is more on autopilot, like charitable work - again, I once read a blog from a trader who started a college grants program and he grants tuition every year to students fully financed from his trading. It may sound foolish to some people, but it is something I want to do as well. Other plans are to invest in housing programs, healthcare programs, etc. Not there yet, but hopefully heading in that direction. And of course, my goal will be buying more shares of the companies - pretty much crate a "Berkshire Hathaway" holding.

Answer 3)
I think I answered some of the questions above but, I do not trade other people's money. Only money of my own and our members. And the members are aware of the risk and trading style I use. As of today, I use a multimember LLC (S-corp) but may eventually switch to C-corp in the future. I am not yet in the process of hiring people, so I do not have answers to that. Maybe five to 10 years down the road I might start hiring staff. But as of now, I need to be able to sustain myself and the members who plan on retiring using their investments (once we start distributions).

Hope this answered your questions.

 

[Martzee]

What are your favorite indicators. What do you like looking at? I like looking at $DXY and /VX.

I do not look at indicators much as I do not trade. My strategy, as described in my "Trading Plan" above is to accumulate assets and trade options around these assets. Thus, I use the Wheel Strategy and with this strategy, I do not care much what the market or stocks are doing.

For example, I want to accumulate AAPL. I start selling puts against this stock or strangles. By selling strangles, I sell a put and call at the same time. For that, I collect between $80 -$100 a week. If the stock drops below my put strike price, I either attempt to roll the put away in time and lower or let it assign and buy 100 shares. If the stock goes up (while I still do not have 100 shares) I hedge the position by buying 100 shares or roll the call away in time and higher.

Once I have the position, I collect dividends, keep selling strangles, and collect dividends. This way I really do not need to know what the indicators are saying. I used to look at RSI, MACD, and Stochastic and still have them in my charting software, but do not use them much. I, however, watch regularly SPX, /ES, QQQ, and IWM. I want to be in tune with the overall market.

 

[Martzee]

How do you generate cash when the market is moving down?
Do you also try this on etfs?
How much annual returns do you get out of it on average?
And what are the hedging strategies which you use to avoid exercise?

See below in red:

How do you generate cash when the market is moving down?
I sell options, primarily, to generate cash (plus dividends), so it doesn't matter much where the market moves (but...). I sell strangles, that is, I sell a put and a call at the same time, same expiration. If the market moves sideways, I make money, if the market moves slightly up, I make money, if the market moves slightly down, I make money. The only time when I get a hard time is when the market moves violently down or up, then I have to take action. To protect me from losses, I hold enough cash for assignments or hedge a position with stock holding. On top of that, strangles (or single puts or calls) are extremely easy to roll, so if the market moves violently down as it did in March, I roll the position down and away in time to prevent early assignment. Normally, I open 0 DTE (days to expiration) to 45 DTE trades. When a violent move happens, I immediately move the trade to 90 DTE and keep it there as long as the stock or market calms down, meaning that when a trade moves to 60 DTE, or 50 DTE, I move it back to 90 DTE. So when a market moves down, I still make money and skew my trades towards downside move (meaning giving more room for the put side and go more aggressive on the call side).

Do you also try this on etfs?
I do this with ETFs but not all of them. For example, I trade this strategy against KBE but do not trade it against SPY or IWM. The reason is the capital requirement. With KBE the capital requirement is around $300 to trade a strangle, with SPY it would be $15,000. So I use mostly stocks. However, I use a strategy called a Poor man's covered call (PMCC) against these funds. I buy an at-the-money long term call (LEAPS) and start selling covered calls against the LEAPS call (below is a picture of two trades I opened earlier this year).

How much annual returns do you get out of it on average?
The minimum return on the options part is 125% (but it varies, this year was extremely successful and I have a 360% return, last year was bad as I made a few very bad trades trading SPX 0DTE options and those bit me), add dividends approx. 5% a year + stocks capital appreciation 8%

And what are the hedging strategies which you use to avoid exercise?
There are not many strategies to avoid exercise. As a seller, you never know when and why the buyer decides to exercise his option. You can prevent the automatic exercise (when the option moves in-the-money at expiration) by either closing the position or rolling it. I mostly roll, unless I want the stock exercise (I use a wheel strategy so I am OK to get assign to or away from the stock). On my blog, I wrote about ways how to protect your call side, here is a link to the article: Selling Covered Calls below your stock cost basis. What to do? To protect yourself on the put side is similar - have enough cash to buy the stock, buy back the put option (close the position), or roll it, or sell the stock short to neutralize the put, convert it to a call, or convert it to a debit spread, or a butterfly. If you get assigned, just make sure you have enough money to hold the position (many new investors get burned because they open naked puts, usually too many, and when the trouble hits the fan and they got assigned, they are forced to close the stock position at a loss) and then sell covered calls (I usually start selling deep in the money covered calls to gain downside protection and still make money). If you want to discuss this strategy more, let me know and I can break it down.

 

[Martzee]

December 2020 and the entire year 2020 is over. I trade 4 accounts and have slightly different strategies for each. That depends on the type of account. If it is a cash account, the strategy is different than in the margin account.

Considering how difficult the 2020 year was, it was a very profitable year for my trading business. And I love this business.

Account #1 ($20,624.47) YTD: +419.15%
Account #2 ($22,216.46) YTD: -2.54%
Account #3 ($37,116.28) YTD: -0.39%
Account #4 ($11,312.36) YTD: +37.96%

My Account #1 was an account I placed a lot of effort and focus on in 2020. I made many mistakes trading options without properly protecting my money. Fortunately, in 2019, I realized I was wrong and changed my strategy to what I knew was working for me. The results exceeded my expectations.

Account #2 is a cash account and the loss was due to the same mistakes I made in account #1 (trading 0 DTE SPX Iron Condors). This account was definitely suitable for this strategy, well this strategy is not suitable for me at all. Although the account shows a loss for the year, I was actually down almost 30% due to losses I accumulated. I dedicated this year to fix this account and I am satisfied with the results.

The same could be said with account #3 which I was also in a "repair mode".

Account #4 is a very conservative account. I trade the same strategy as in account #1 but not as aggressive. So, I could call it a passive income account.

I have seen people despising 30% a year gains in the stock market (or even 12% a year) saying that starting a business brings better results some in a realm of 1000%. Yes, it may. But be realistic. How many people achieved such success? Definitely not all of those who despise 12% a year. Even mature and well-established companies such as Amazon are growing by 30% a year, AAPL's CAGR is 30.5% a year. Yes, they grew by thousands of percent over the decades, but annually, they only grow 30%. If you manage to grow your trading business by 30% a year (my personal expectations were 45% a year), you do the exact same as Amazon or Apple.

Happy New Year 2021 and let's see what my trading will look like in 2021.

 

[Martzee]

Stock dividends do not make you richer. Its the same as going to the ATM and withdrawing money out of your bank account.

LOL...

This is the most ridiculous and ignorant comment I have ever seen so far.

 

[Martzee]

Ljean's characterization of dividends isn't wrong either though.

Saying that dividends are like going to an ATM and withdrawing money from a bank account - sorry that is wrong.

 

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[Guest-5ty5s4]

Something is missing from the discussion of dividends vs growth that seems critically important. Correct me if I’m wrong, but...

If a stock does reinvest its earnings in lieu of paying a dividend, the idea is to grow the company instead. This is great because it can grow unrealized gains!
But... if the stock is relatively unknown, unpopular, or just not all that interesting or hyped up in the news, there is a chance that this stock’s price won’t change much to reflect what management is doing to grow the value. Of course, that makes it a prime “value” stock, but as we all know, “markets can remain irrational for a long, long time.”

What I’m getting at is that share appreciation is NOT guaranteed. At least with a dividend (one that is supported by a healthy payout ratio and other fundamentals), you are getting an actual return on your money!

This isn’t to mention the fact that some companies simply can’t reinvest into more growth. The main point I’m making is that dividends are the best option in some cases.

Let me know what y’all think. I’m trying to learn by joining this discussion but this is where I’m at on growth vs. dividend (obviously less taxes are nice if you can count on share appreciation - I just don’t think you can ever count on that)

 

[Guest-5ty5s4]

There are misconceptions and misunderstandings about the dividends I have seen in the past from people. Many investors do not want to buy dividend stocks and prefer growth stocks because they consider a 3% yield and sacrificing the stock growth not enough to bother to invest in these stocks.

Another claim is that in order to achieve let's say $90,000 annual dividend income, an investor would have to accumulate a $2.5 million account at current yields, and that is not realistic in today's world since it would take a person over 30 or more years to do.

Both claims are only partially valid. None take into account dividend growth.

If you take into account the dividend growth, the time and amount needed to accumulate shrinks significantly. For example, my current portfolio has a current dividend yield of 3.52% and dividend growth of 5.91%. With these numbers, the future yield on cost will be:

8.75% yield in 10 years shrinking the capital requirements to $1,028,571 portfolio value
31.26% yield in 20 years shrinking the capital requirements to $287,907 portfolio value

and so on (This is when you are reinvesting all dividends and not adding new money. If you start adding more of the new money, it will grow even faster). And, I speed up this process with options income. That was always my dream and goal in investing and trading - generate enough income that can be invested to buy more shares that would generate even more income. At some point in the future, I should accumulate enough income to start paying my bills on top of the accumulating of more stocks.

But yes, you have to give your portfolio time to work it out. If you are looking for a faster way to get rich, then this probably is not for you.

This is important. I know it's slowlane investing, but I think it's crucial people at least understand slowlane math before they start talking about it.

There was another post where I did the numbers for someone regarding dividend growth, to explain how a 3% yield today is very different from a 3% yield 10 years later after your shares have grown to double what they were.

Of course, counting on this share growth is a bit (or a lot) naive, but it is important to know the math.

Anyway, good thread. You should join INSIDERS because there's some stuff on this already being discussed pretty extensively, and more deeply. I mean I'm not staff or anything, but there are a couple threads in particular I feel like you should join in on.

 

[Martzee]

November and the first week of December were great on options and dividend income. Net-liq suffered from tech selloff.

We are still up over 300% for 2021 and our options income reached $56k for the year.

Details on the investing and trading report are here:

2021 Week 48 investing and trading report​

 

[Martzee]

Another successful week despite the market's selloff. Thanks to the selling I had to roll some of the trades that delivered additional credit increasing my income from options to over $6k in December.
Detailed report here on my blog:

2021 Week 50 investing and trading report | Hello Suckers ...

December is almost over. The entire year 2021 is almost over. Despite extreme volatility, FED, inflation, fear, I must say, 2021 was an exceptional year for me. This is almost the last investing and trading report this year. I was reporting my progress diligently every week to show how I was...

hellosuckers.net

 

[Martzee]

2022 Week 13 investing and trading report​

Account growth: +6.92%
Options Premiums Received: $952.00
Options Premiums YTD: $17,267.00 +15.30%
Dividends Received: $124.05
Dividends YTD: $1,454.53
Portfolio Yield: 5.51%

 

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[Martzee]

What are the benefits of LLC for trading business? I talked about it with my accountant and she said there are none.

If she said "none" then you need to change your accountant.

There are many benefits - business-wise, as well as trading-wise. For example, many expenses that are not deductible as a sole proprietor (investor) can be deducted inside your LLC. Note, it must be a partnership, so at least two members LLC. Not a standard simple LLC of a one-member (sole proprietor).

 

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[Martzee]

Can you be a little more specific? name one expense that can be deducted with a partner LLC and not a single member LLC or sole proprietor (for trading stocks or options).

It depends.

If you are a small account owner and buy and sell stocks (options) here and there then there probably isn't much. But if you want to treat your trading/investing as a business, you can see a lot of savings as many items that are not deductible for a sole proprietor but are deductible as an LLC.

One example can be if you take a loan to buy your computers, subscriptions, education, books, office supplies, etc. many items will not be deductible if you trade as a John Doe but will be fully deductible as an LLC. The interest on the loan is not deductible for John Doe but is deductible for LLC, etc.

If you decide to take a loan to buy stocks or trade options (or whatever instrument) as a John Doe you will not be able to deduct interest on that loan, but you will be able to do so as LLC. Banks will not lend you money for trading but you can take a personal loan and then lend it to the LLC and all interest the LLC pays you back with the principal will be deductible.

If on top of it you qualify for a TTS and change your accounting to market-to-market, more benefits kick in, such as all your losses will be fully deductible, John Doe can only deduct $3,000 a year and roll over the rest into the next year. Margin interest will be deductible. You may argue that even a John Doe can qualify for a TTS so you do not need an LLC. True, but IRS challenges individual investors more than a company because as a business you fulfill one of the requirements for TTS while an individual investor may have issues proving to the IRS that he is trading under a TTS to make a living.

And if you happen to live on your trading and investments and will need your own individual health insurance, the premiums will be fully deductible for an LLC while individual investors can only deduct a certain %% from AGI. If you start paying yourself a salary, it will be deductible for an LLC (payroll expense) which would lower your overall passthrough tax burden (but in this case it may be better to switch to a C corporation). The list goes on and on. I do not know and use all the benefits yet because I am not there yet to utilize them fully but plan on doing so in the future. I am not an accountant so if you want to learn more, go to an accountant that specializes in taxes for traders (Green Tax and Traders Accounting) and they will explain it all to you. They will also evaluate your situation and let you know if it makes sense for your particular investment/trading approach or not. Because this really depends on where you are with your investing or trading.

 

[Martzee]

A little history:

I was always fascinated by the stock market and I knew that one day, this would be my "thing". But I lived in a country where trading was not possible. I could start in 1996. That was my big day. Unfortunately, I was also extremely ignorant and not very successful. Soon, I stopped trading.

I studied as much as I could and resumed in 2006. In 2010 I discovered options and learned a lot about options, how can they make you money, and how they can lose you money.

In 2014 I started a personal hedge fund. Trading and growing money in it since then.

 

[socaldude]

Interesting post. Welcome to the forum.