Naked put selling on large caps

Amongst one of my favorite and most profitable strategies is selling in the money naked puts on large cap stocks. Many people are misinformed by their brokers as well as their friends about the risks associated with naked put selling. Naked put selling high quality dividend paying stocks that you would love to own pretty much reduces most of the risks related to naked put selling.

First, when you sell a naked put you are basically taking on an obligation to buy the stock at a set price from now until the expiration date (or until the position is closed). In exchange for taking on this obligation you collect a premium. In essence you are acting as an insurance company, insuring people against a drop in price on the given stock.

People find naked put selling risky because of the leverage afforded by naked put selling (approximately 5 to 1). This makes it possible to wipe out your entire account if you are not careful. By writing cash secured naked puts on high quality dividend paying stocks we are 1) making sure we have enough money to buy the stock. 2) lowering our cost basis when we are assigned.

Let us take a look at what makes this strategy so successful.

Reducing our cost basis (while maintaining capital appreciation)

When you sell an in the money naked put you are getting the benefit of moderate capital appreciation as well as lowering our cost basis on the stock by receiving a premium. For this reason we maintain that you should only sell naked puts on stocks you would love to own. For example, Coca Cola (KO) is currently trading around $45, right now you can sell a January 2016 $50 put for around $7.20. If Coca Cola reaches $50 by next year you get to keep the full premium ($5 intrinsic value + $2.20 in time premium received). In the case that Coca Cola instead declines to $40 by next year you can simply roll forward the $50 put to January 2017 while also collecting some additional time premium in the process. You can do this indefinitely until the stock rises again while lowering your cost basis each and every year. If the stock does decline to a price where the valuation seems cheaper though, I would recommend selling additional naked puts at a lower (but still in the money) strike price to further decrease your cost basis.

It is important to remember that each time you reduce your cost basis by selling naked puts you are essentially increasing the yield on cost when you are finally assigned and start collecting dividends.

Moderate Leverage

One of the riskiest parts of naked put selling is the leverage possible. By using moderate leverage however we can generate market beating returns with very little additional risk. One of the reasons we use large cap value stocks with this strategy is that they are often the least volatile vs the market with betas often below 1. By utilizing a little bit of leverage we can write additional naked puts on our losing positions in order to further reduce our cost basis. One thing we find often with large cap dividend stocks is that the dividend is already baked into the naked put in the form of time premium. By using moderate leverage we can increase our returns by leveraging the INCOME rather than the PRICE of the stock. In essence this is the same as buying a house using a mortgage and renting it out, your down payment might be just 20% which leads to outsized returns on your capital from the rental income.

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How Your Spouse Helps Your Taxes

With marriage come a lot of wonderful things. You have someone to spend your life with. You have someone to raise a family with. You also have someone that will come in handy when it comes to your taxes! Of course this is not a good reason to get married in itself, but if you are going to take the plunge you may as well take advantage of all the perks marriage has to offer!

If you are married, you can use your spouses earned income to help fund your IRA. In order to contribute to an IRA you have to show taxable compensation. But, if you are married an exception can be made if you are filing your year-end taxes as married filing jointly. The spouse with the taxable compensation can make a contribution to your IRA if you do not have any taxable income. As long as one spouse is working then it does not matter who puts the money into the IRA.

While your spouse shelters you from harm, they can also serve as a tax shelter. If there is one spouse who is losing money they can take advantage of certain deductions such as those dealing with your home. This is true when it comes to medical expenses as well. Being married can also shelter your estate. If you have a good deal of money you can leave as much of it as you wish to your spouse without having to deal with estate taxes. This exemption will protect the living spouse until the time that they pass on as well.

The law puts a limit on the amount of charitable contributions one can use as deductions each year. When you are married that limit goes up so if one partner makes one big contribution to their charity of choice but does not have double the amount in income, the excess contribution is deducted the next tax year. Just be sure to save all your filing documents in case there are any discrepancies when you go for the carry over. In addition to these things you also may have a chance at getting back more money from the EIC when you file. So, if you are newly married make sure you tell your tax preparer this so they can get you everything  possible!

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Investing If You Are Broke

It takes money in order to make money. This is something people with low incomes know all about. When you are living from check to check, investing may be the very least of your priorities even if it is the one thing you really want to be able to do! However, low incomes do not have to stop you dead in your tracks. After all, if you don’t save some money today you will not have anything to live off of tomorrow. With this in mind, check out the ideas below and see if they can fit into your life.

The first thing you can do viagra online cheap to save money for investments (even small ones!) is think of all the things  you spend your money on that you don’t have to. How many cups of coffee do you get from Starbucks each week? How often do you grab a greasy burger for lunch each week? Do you go out to the movies more than you should? These are all things that you can cut down on or even stop completely. Just think-if you spend $50 a week at Starbucks (don’t laugh, those drinks are expensive!), you will have $200 a month to invest if you make your own go-juice before work.

Does the company you work for have a 401k plan? If so this is the very first place you should be investing. This is especially true if you work for a company that matches your contributions. This is free money from your company so go to it for investment before going for outside opportunities. There are many perks to the 401k so be sure to look into that right away.

If you can think far ahead, target date funds will help you a great deal. This type of fund works by targeting the date you have set in mind for retirement and changes the percent of bonds and stocks to ensure that your money is staying safe as you get closer to “D” day. This is a great way for you to have your money when you need it without having to do your own portfolio management. Just be sure that you research the fund before settling as some can have fees that are much higher than typical. These are all ways that you can invest if you are living on the edge like many Americans are.

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The Pros and Cons of ETFs

In the late n1980’s, ETFs (exchange traded funds) quickly became popular as investors began searching for something other than mutual funds. Both individual and institutional investors spotted the benefits of having a grouping of specific stocks that had less management fees and more price visibility. However, with the fund having a lesser management there was more of a burden on the investor to choose the proper investments. Here you will learn the pros and cons of ETFs so you can navigate the waters of risk and reward more effectively.

There are many pros to EFTs. The first one is diversification. Just one can allow a great deal of exposure to a variety of equities, styles, and market segments. Compared to stock, EFTs are able to track a larger range of stock and even try to mimic returns of a specific country. For example, you could put your focus on India, Russia, China and Russia in an EFT. Although mutual funds can also be diverse the EFT rates are lower and the trades are closer to equity investments than mutual funds are. The expense ratios of EFTs are lower when they are managed passively as well. The expense ratio of a mutual fund is higher because of costs like load fees, management fees and the wages for the board of directors. And even though EFTs are so diversified, they trade just as stocks do. All of your dividends can be reinvested automatically and since they are so like stocks you can easily search for the daily changes in order to track your investment.

When there are pros there are also cons and this is true when it comes to EFTs. One con is that although you will see dividend yields, they may not be as hefty as they are in stocks. Also, in some countries you may be limited to stocks with large caps because of a narrow market. This could be an obstacle to the potential growth of your EFTs. In some cases, the cost of the EFT may be higher when dealing with big corporations. In this case you would be better off going with actual stocks or perhaps a managed fund instead. It takes some work to figure out your needs and desires so go slow and find what works best for you.

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Your Budgeting Questions Answered

Creating and sticking to a budget can sound like a scary and complicated task. Anything dealing with managing finances can seem like a monumental thing! However, a budget is just a tool for you to organize the money you have coming in and going out. In a way,  you are the CEO of you own little business and by keeping a budget you are ensuring that your business (I.E. your family), has a good cash flow and is monitored well every month. Keeping this in mind, read over the following answers to what are likely your most pressing budget questions.

The first question to be answered is how much you should put aside for your investments. To answer this you have to consider your liquid needs, your disposable income and your age. How old you are will help you with asset allocation and in knowing how much you should set aside for major purchases. For instance, a younger person would have to set aside more for buying something like a home, than an older person would. Your disposable income stands alone from other costs that must be paid out so you can survive. This type of income can be spent on wants and desires. How much disposable income you choose to save now will decide what you will have for the future. You must also ask yourself how quickly you can turn your assets into cash (liquidity). The liquidity level will help you figure out the interest rates you will get and how quickly you can gain access to your own money. The personal amount of liquidity you keep is totally up to you and before you invest you must decide how much you do want to maintain.

The second question to be answered is how much money you should set aside for your debts, including car loans and credit cards. Some debt, like car loans, comes with a payment schedule. However, rolling debt like credit cards can be paid according to your ability to pay them. Here is the main rule – do not set money aside for investment accounts if you have credit card balances. The majority of credit cards will charge anywhere between 5 and 30 percent annual interest and this will outpace the amount you can earn from funds, bonds and stocks. It is smarter to pay your credit card bills off first and begin with budgeting some of your money for the investment accounts that is taxable after. If you do this you will let yourself save money on rising interest expenses. In the end you should keep in mind that keeping a budget is not a pesky part of life, it is something that actually brings you freedom and the ability to relax about your finances.

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Delving Deeper Into The 401k

401K plans are the most popular kind of saving plans there are. This year (2013), there is a max compensation amount that you can defer to and that amount is $17,500. Those who are 50 years of age by years end are buy viagra online able to make what are known as catch up contributions not exceeding $5,500. The employee and employer joint contribution limit continues to remain at $51,000 as of this year and $56,500 if you are over the age of 50. The components from the employers end still include profit sharing contributions, matching contributions and non-elective contributions. Generally, contributions to the plan get invested in a mutual funds portfolio. However, they can also include bonds, stocks and other vehicles of investment that are allowed according to the provisions set forth by the government.

There are also rules for distribution for 401k plans. They are different from those rules that govern the distribution of IRA’s. The cash in the plan does experience growth that is tax deferred just like with an IRA but the IRA distributions are allowed to be made anytime and a 401k can be taken out under certain conditions such as:

  • The employee dies, retires or becomes disabled
  • The employee reaches the age of fifty nine and a half
  • The employee finds themselves in a hardship that is defined in the plan
  • If and when the plan is terminated

At the age of seventy and a half there is a required minimum distribution required as well unless the person is still under employment and the plan lets the required minimum distribution to be deferred until the person chooses to retire. Distributions are counted as regular income and are therefore assessed by a 10% penalty for early removal before the person reaches the age of fifty nine and a half. There are few exceptions and they are as follows:

  • Distributions are made after the employees death or disability
  • Distributions are made once the employee is no longer in the company’s service
  • Distribution is not taxable income
  • Distribution comes from a levy on the persons account due to IRS intervention.

Keeping these things in mind will help you to better manage your 401K plan.

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Understanding Your 401k

In 1978, the 401k was created and is now the most commonly used type of employer/employee retirement plan in the country. Millions of employees depend on money that is saved in their 401k because it provides for them when they reach their retirement years. In addition, there are a lot of employers that use these plans as a way of giving their company stock to their workers. There are very few plans that are able to match the flexibility of the 401k and for this reason it is a very important aspect of saving for the future.

While the 401k is a common term, not everyone actually understands what it means. Basically, it is a type of arrangement that lets workers pick between getting cash compensation and putting a specific percentage of their pay into an account linked to the savings plan. This deferred amount is not typically cialis 20mg online taxable until the worker withdraws the money. However, if the plan allows it, the worker can contribute more money to the plan on an after taxation basis. When this choice is made, the money is not taxed upon withdrawal. The 401k is a retirement plan is also known as a qualified plan. This means that it is regulated by the government by regulations that are stipulated in the tax code known as the Employee Retirement Income Security Act of 1974.

Plans that are qualified are divided into separate concepts. They can be defined contribution plans or they can be defined benefit plans. The 401k is a defined contribution plan. This means that the balance of each participant is figured by the contributions that are made to said plan as well as the plans investment performance. Typically, the employer isn’t required to add contributions to their plan as they would have to do with a pension plan. But, many employers will match any employee contributions up to a specific percentage. They may also contribute through profit website sharing. The bottom line buy viagra online is that taking part in your company’s 401k plan is one of the best ways to ensure a secure future.

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Erasing Credit Mistakes

Having good credit has become increasingly important. Without good credit it can be virtually impossible to get a car, a house, a loan or even smaller and simpler things. The problem is that getting and keeping good credit can be a real challenge. There are many reasons for this including getting a credit card too when you are too young, using credit viagra online cheap cards like debit cards (small charges can build up fast!) and other things. So what can you do to fix your credit mistakes? Read on to find out more.

The first step you must take is getting your credit report. There are any sites online where you can get your report but according to the law, you must get a free copy of it each year. Go over your credit report with a fine tooth comb to make sure there are no errors. If you see something that you know that you did not do, file a dispute right away and this can help fix your credit. Experts recommend that you file your dispute by letter and not email so that there is a paper trail to follow.

Look over any delinquent accounts listed on your credit report. Most things will only stay on your report for just seven years. Most people know this but what they do not know is the following: even if you set up payments for delinquent accounts, they will not fall off of your credit report until the amount due is paid in full. Because of this it is sometimes in your best interest not to even attempt to pay off these accounts. What you can do to improve your credit is find the delinquent accounts that you can afford to pay off all at once and do it. They will immediately fall off of your credit report and your score will go up.

Even if you recognize that you do owe on a delinquent account you can still try to remove it from your credit report. Go over each one and send a letter to the reporting energy disputing the claim. They must contact the creditor within thirty days and the creditor must look up your account to prove that you do owe them. For older accounts this is more difficult for the creditors. Many times they will not take the time to do the research and they will not answer the query letter. If they do not do it in thirty days the delinquent account is removed from your credit report automatically. This may not work for all delinquent accounts but it is definitely worth the time to help improve your score.

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Credit Card Gimmicks To Watch Out For

Everywhere you turn you are bombarded with ads from credit card companies that are trying to lure you in with special deals. There are travel deals, points programs, and other rewards that are attached to most every credit card offer these days. But as with anything, there are strings attached. These companies depend on the fact that the average consumer viagra online order is 100% focused on the reward and is not reading the fine print. Here are some gimmicks to watch out for before signing up for a credit card that seems to have it all.

While the ads seem pretty straightforward they are typically pretty complicated. The offers and bonuses are very enticing but many times the things you need to do to get the rewards are complicated and difficult for the average consumer. The thing is that the credit card companies rotate the reward programs and change up the things that allow you to qualify for them. Another thing is that points usually expire at some point but you will not know this unless you read the fine print – they certainly won’t tell you!

Who would not want to sign up for a credit card that offered them 15,000 flying miles right off the bat?!?! But wait a minute and read the fine print-you have to spend X amount of money before you can redeem these points. Another thing to consider from the category is caps. If you read closely you may just see that there is a cap on how many of these reward miles you can use at one time. Or, only certain purchases will give you reward points. There may also be rules about having to redeem a specific amount of points in one purchase. For instance, you may not be allowed to redeem just ten points because the minimum allowed at one time is 20.

The bottom line is to read the fine print! Credit card companies want entice you the best that they can and by putting the details in the back of the deal the odds are stacked in their favor. It is up to you to ensure that you know all the details before signing on the dotted line.

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Improving Your Financial Health

How you manage your money now will have a great impact on your future. Every choice you make now will affect your financial future and this is why you must get things together before it is too late. By the time you retire you will want to have a good amount of savings behind you so you can live comfortably and without stress. Here are some good ways to improve your financial health now so you will be healthy in the future.

The very first thing you should be doing now is budgeting. The thing about money is that it comes in but it also goes out. Ignoring this fact will do nothing good for you. Simply crunching some numbers will help you develop a budget, even if it is a loose budget, so that you know where your money is going and what you have to spend and save. Take all of your bills into account and it will be easy to see what you can be and should be saving.

Another thing that you should be doing is living within your means – perhaps even living a bit below your means. All too often people live within the means of what they are currently making. However, if you are living a lifestyle that your $20 an hour job supports then you may find yourself in big trouble later down the road. What if you lose your job? What about inflation with no pay raise? If you live simply you can save more.

Finally, spend your money mindfully. Before you pull out your wallet ask yourself if the item you are going to purchase is something you need or something you want. If it is a want then put it back! Another excellent idea is to save your money early on. Do not wait until you are middle aged. The earlier you begin saving the more you will have in the future and the more responsible you will be with your money. Think of this; if you save a dollar on the first of the month, two on the second, three on the third, and so on, you will have a tidy sum put back at the end of each year! Think along these lines and when you need the money it will be right there for you!

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