Money Trades


On February 8th, I wrote a post entitled, “What’s wrong with this picture?” which was a graph of the Dow moving diagonally up almost at a straight 45 degree angle. Folks, a chart like that is a big warning sign that something is a miss and today proved that point.

DowWrong.png

Because that chart looked way out of whack, I took a defensive position and bought 100 shares of DXD to capitalize on the discrepancy. Today I sold off my 100 shares and made a cool 3.5% profit in under 30 days. DXD is an ETF that is double short the Dow and it came in mighty handy today.

Yet another reason I love ETFs!

It takes money to make money and that $7500 is no exception.  Over the past 12 months, I strategically invested money in Exchange Traded Funds, periodically wrote covered calls and profited from the transactions.

I’ve been personally happy with the success of my strategy and I will be expanding it to include arbitrage money soon.  In the meantime, check out www.etfcoveredcalls.com where you can see my money in motion and check out what I’m looking at over the next few months.

I’ll have a special treat for everyone next week on some components of my wealth building strategy.  Don’t worry, it’s all free, no need to send me $189 or sign up for some $1000 newsletter!

A few days ago, I purchased 100 shares of DXD to double short the Dow.  This is yet another reason I love ETFs; they provide mechanisms for shorting a market without resorting to actual futures/options trading to short.   The chart shows the Dow climbing up in a straight line for the past 6 months.  I’m an optimistic guy but this trend can’t hold forever and there will be a pull back and correction.

DowWrong.png

My target is 2% appreciation in a short period (over the next few weeks / month).

Modern technology is absolutely amazing!  About 20 years ago, it would have taken a couple of phone calls, perhaps an hour and at least $100 in broker fees to do what I did this morning.  What did I do?  I woke up, got online to check the status of the market, saw an opportunity to make $732 and took it.

I eventually hope to get to the point where I don’t have to bother getting up and clicking the mouse;  That’s just too much work! LOL!

If you want to learn about my strategy, go over to www.ETFCoveredCalls.com where you can check out how I do it all.

If you missed my first post, you’ll want to read it here.  Today is Options Expiry and it looks like SMH will close below the $35 strike price which means I get to keep the $850 (2.5%) premium AND I get to hold on to my shares so that I can write February 07 or May 07 Calls.

But what I really want to illustrate is how much mutual funds suck.  Click on the graph to follow along.

SMHvsSMPSX2.png
If I had bought SMPSX (Semiconductors Mutual Fund) back in December 2006 at $17.34 I would be down 6% today.  I know what some of you are going to say…..”Great time to dollar cost average down….blah…blah…blah”

Perhaps it is a great time to dollar cost average down and perhaps you’ll eventually make up the loss but while you’re busy dollar cost averaging down I’ve made $850 in cash that’s sitting in my account and I STILL own the shares of SMH just like you STILL own the shares of SMPSX.  Look at the chart, the graphs lines are nearly identical except one of them generates cash flow (SMH) while the other just sits there waiting for something to happen (SMPSX).

Where do I go from here?  I’m bullish on the semiconductor industry so I’ll hold for now.  I have many options from here:

  • Sell February 07 $35 Calls  (currently $0.28 = 1% additional return)
  • Sell May 07 $35 Calls         (currently $1.25 = 3.6% additional return)
  • Sell August 07 $35 Calls    (currently $2.15 = 6.2% additional return)
  • I can wait until SMH breaches $35 then sell May or August Calls which would yield higher returns.
  • I can liquidate now and break even
  • I can straddle or do some fairly exotic things

What can a mutual fund holder do?

  • Buy more (to dollar cost average)
  • Sell Fund and move to greener pastures (at a loss)

While I’m selling and making money you’re waiting and buying (spending money).  Remember:  YOU MAKE MONEY SELLING STOCKS NOT BUYING THEM.
Is it sinking in yet?

If it is, go over to www.etfcoveredcalls.com to check out how I’m putting it all together.

Please note that the trading day still has a few hours left as I write this and SMH could rocket up to the moon in which case I’ll be forced to sell at $35 and only capture 4.6% return in 42 days but I’d be ok with that scenario too 😉

A couple of weeks ago, I bought 1000 shares of SMH and sold January 2007 $35 Calls for $0.85 and I’m contemplating buying them back since SMH has dropped down to $33.27 and those same calls are now selling for $0.25.  This would translate into a profit of $600 for a couple of weeks work.   I’m contemplating buying back the options because the volume and interest in the calls is high and I think the drop is temporary.  We’ll see what happens next week.

smh2007_Jan.png

Back on November 1st, I bought 200 shares of GDX (gold miners ETF) for $7700 ($38.50/share). I immediately sold 2 contracts for November 17th expiry at $38 strike price for $1.30. I profited $245 (3% return) and the contracts ended up expiring worthless on the 17th so I kept my 200 shares of GDX.

On November 21st, I sold 2 more contracts for December 15th expiry at $39 strike price for $0.90. I pocketed $165 (2% return). Currently, GDX is trading at $40.50 so I will likely get called and have to sell my 200 shares of GDX at $39.00 which means I’ll pocket an additional $0.50 from where I bought it at $38.50. I’ll earn an additional $70 (after commissions).

My initial investment of $7700 has yielded $245+$165+70=$480 (6.23% return) from November 1st thru December 15th.

The trading day isn’t over, the possibility exists that GDX can still dip below $39 in which case I’ll write more contracts for January 07 expiry but if it doesn’t I’m happy with my 6.23% return for the past 45 days 😉

UPDATE:  GDX has closed at $39.76 so I will be called out.  Final return is 6.23% in 45 days.   I’ve updated ETFCoveredCalls.com with the lastest possibilities for January 07 & February 07.   Good luck and happy hunting.

Back in early October, I purchased 100 shares of GDX at $34.25 and sold the $35 call option for November 06 for $1.50.  It looks like I will likely get called today on this trade so my profit is estimated at 4 pct.  If I can continue these type of trades throughout the year then I’m looking at 32% to 48% return annually but I’d happy with half that return potential.

Later in the evening today, I’ll run the ETF-Cashinator and post the results for the highest yielding Covered Calls for December 06 and January 07 on ETFs over at http://www.etfcoveredcalls.com.

Happy Hunting.

I have been fairly disappointed with the finance blogging world. My main concern is that no one seems to be offering any real advice on how to earn some extra cash with investments. No one seems to want to stick their neck out and publish how well or bad their investments are doing and the most often advice doled out is “invest in mutual funds” and “spend less than you earn.” While that advice is reasonable for people that are “finance challenged” it doesn’t really help the rest of us.

I’ve created a new website that will chronicle my adventures in money making through one simple strategy that is easy to understand and follow: Buying ETF securities and shaking money out of them via covered calls. I will state that I will likely make some money and I will likely LOSE some money but the whole point of the program is to help educate people interested in learning.

Disclaimer: Investing in securities can potentially lead to loss of funds, including principle, all information provided here is for entertainment and educational purposes and in no way is intended to be taken as financial advice. Consult your financial adviser and perform your own due diligence before investing in any kind of security.

And now, Rich Slick proudly presents http://www.etfcoveredcalls.com

On Monday night I ran an ETF Covered Call Optimizer Report and the results were interesting. The highest returns writing covered calls on ETFs ended up being GDX (Gold Miners) for March 2007. Evidently, speculators and options traders think gold will continue to climb while the betting on oil (XLE) for March 2007 calls were fizzling despite the recent upswing in XLE from $51 to $55.

XLEvsGDX_Oct2006.gif

Meanwhile the Canadian Dollar has been slipping a bit from $1.12 to about $1.14. What’s my take on the whole thing?

gold_oil_canada.gif

I now feel oil will drop once we get past the winter season while inflation and gold will continue to climb back up. I would expect the federal reserve to continue raising rates. Of course much of this speculation is based on a report I ran today and a few things I’ve been reading on some news sites but I’ll re-run my optimizer on Friday after Options Expiry to see how things pan out.

If things hold the way they are currently going then I’ll be called on XLE 54 strike this Friday which would be a good thing so I’m not left holding the bag during my anticipated XLE drop.

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