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55% Returns? This is not for everyone!

Discussion in 'BlackHat Lounge' started by BassTrackerBoats, Jul 28, 2011.

  1. BassTrackerBoats

    BassTrackerBoats Moderator Staff Member Moderator Jr. VIP

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    Ok, I'm going to share with you how I get some stupid high returns in the stock market.

    The method I am sharing is not for everyone and I would suggest you talk to a professional in that industry before doing what I do.

    Also, if you don't have money that you can LOSE, don't do this either.

    I am also not going to name a specific stock because I am not licensed in that arena and not sure what the laws are there so please do not ask me.

    The process I use is called selling call options on stock that I currently own; this is known as selling covered calls.

    What is an call option?

    It is the right but not the obligation to purchase the underlying instrument (In this instance stocks) associated with it.

    Essentially, you buy shares of a stock that is flat. Flat = not moving much either up or down according to the charts and one that there has been little news on lately.

    Then after you buy the stock, you sell corresponding options and receive immediate revenue from the sale of the options.

    Specifically you sell call options that are higher than the current value of the underlying stock.

    For instance, I bought 500 shares of a stock this AM for a little over 18.00 a share for a total of 9165.00.

    Then I sold 5 call options with a strike price of 19.00 (each call is tied to 100 shares of stock) for a total of 205.00.

    The options I bought expire September 17th so they will have no value at that point and if my stock goes to 19.00, I just have to allow the option holder to buy the stock from me at today's price but I get to keep the 205.00.

    So the math on this is I earned 205.00 on a 9165.00 investment in a period of about 45 days. 205.00/9165.00 = 2% profit in 45 days... nothing spectacular...

    BUT

    Carry that out to the year and that and the return is actually 18% as 45 days is about 1 and a half months so you multiply that 18% by 9 to get the annual return.

    That is a rather conservative return because the stock is a blue chip stock and is likely to not have any major movement up or down real fast so it is perfect for this kind of investment.

    Another trade that I did:

    Bought 1000 shares of xyz stock (I've been hitting this stock for over a year and taking out chunks of cash every 6 weeks or so from it) at 5.44 for a total of 5440.00.

    Sold 10 call options for 45.00 each with a strike price of 6.00 for a total of 450.00. Those options expire on September 17th.

    The return in that time frame is 8% or multiplied out to the whole year is 72%... not too bad for a guy that has a bum knee and male pattern baldness.

    Things can go bad though if your stock goes down which is why I suggest that unless you have money to LOSE that you not consider this strategy but you do have protection in the selling of the call if the stock goes down.

    In the case of the first trade, I am protected to the tune of 205.00 or .41 per share and I don't see that stock going down at all especially .41 per share.

    In case #2, I am protected to the tune of 450.00 or .45 per share... that stock can drop but it generally bounces back pretty well so again, I'm not too concerned as I've been watching that puppy for some time.

    There is a lot to it and you have to pay attention to the markets... study graphs... follow the news but this can be a nice little side deal to make a few dollars.

    This works in the commodities markets as well although I no longer follow those markets like I once did.

    I'm a small player with a relatively small account but I do have a buddy that is pretty heavy into it and keeps 250K in his account and does a lot of trading this way and generates some outstanding revenue.

    So if you have a few dollars to play with (I wouldn't open an account with less than 50K) and would like to try a different method of generating revenue, take a look at this and do a bunch of reading on it as it could be a nice 500.00 - 600.00 extra dollars a week.
     
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  2. kboxer7

    kboxer7 Jr. VIP Jr. VIP Premium Member

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    Nice post and congrats on the success! I did a LOT of financial studying while getting my MBA a while back. Always was an interest of mine so I'm glad to see someone on here putting their money to work.

    The old adage "the rich get richer" is only true because they have learned to MAKE THEIR MONEY WORK FOR THEM.

    Any time you can leverage an existing asset to generate more revenue while balancing risk I say go for it. This post has inspired me to do a little more "dabbling" in the market than I have as of late.

    Cheers!
     
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  3. xfactornos

    xfactornos Regular Member

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    Right now, the stocks are going crazy, because of the stupid government problem. I would wait for things to settle before doing this though.

    All of my stocks are way down which is no big deal because im not going to sell but its a big deal if your in options.
     
  4. pixelgrinder

    pixelgrinder Jr. VIP Jr. VIP

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    Good read. You really contribute a lot to this forum with your information and services. It is appreciated, BTB
     
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  5. goodguy333

    goodguy333 Junior Member

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    I am assuming this to be US Markets,right?!:confused:

    Cheerios
     
  6. BassTrackerBoats

    BassTrackerBoats Moderator Staff Member Moderator Jr. VIP

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    I only use the US markets but I'm 99% sure that all the markets have option trading.
     
  7. HoNeYBiRD

    HoNeYBiRD Jr. VIP Jr. VIP

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    nice one as always, however i'm pretty sure, this would be Chinese for me even if it would have been written in my mother tongue lol

    note: i changed back my sig to a stock related one :)
     
  8. IndianGrad

    IndianGrad Junior Member

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    So to reiterate, the key to the OP's post is find blue chip stocks which you know won't crash all of a sudden else you lose almost all your money.

    For someone who wants to dig deeper into options, the following is a good guide:
    http://www.theoptionsguide.com/option-trading-strategies.aspx

    Personally, my favourite is the following strategy(called Long Strangle):
    [​IMG]

    So for example, as in the diagram,
    the stock is currently trading at 40$
    I buy a call option for 45$ (being bullish/optimistic about market)
    & at the same time, I also buy a put option for 35$ (being bearish/pessimistic about market)

    This is the best strategy you can use when you know some news is gonna come soon which will make the stock move heavily either ways depending on the news is good or bad. (For instance, some court order related to the company is gonna be out, or budget is gonna be declared etc.)

    To cash in right now, you know the US issue related to "default" will be clear before Aug 2nd. Use this strategy, because if the news is positive, the markets will gain heavily and if it is negative, it will lose heavily. But you gain either ways :p
     
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  9. BENNY8877

    BENNY8877 Supreme Member

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    You have been in a more than usual sharing mood lately. Whenever I see a thread started by BassTrackerBoats I know that it's a "must read".
     
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  10. dvdgangster

    dvdgangster Junior Member

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    With the whole of the western society on the face of bankruptcy and a major shift of wealth from west to east, the rise of all commodities and the collapse of the Dollar and the Euro, you would need balls of steel to be dabbling in the markets
     
  11. BassTrackerBoats

    BassTrackerBoats Moderator Staff Member Moderator Jr. VIP

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    I've been accused of that in the past.
     
  12. navimeister

    navimeister Regular Member

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    What broker do you use?
     
  13. BassTrackerBoats

    BassTrackerBoats Moderator Staff Member Moderator Jr. VIP

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    I use scottrade - 7.00 a trade.
     
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  14. consciousnesscreates

    consciousnesscreates Power Member

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    Pity they not into Iphone games

    900 dollars to me is like 90 thousand at the minute
     
  15. DutchTrafficService

    DutchTrafficService Regular Member

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    20% profit over a year is considered "AWESOME", most will never reach that, usually it's in the negatives.

    That's all you need to know, don't burn your money...you'll thank me later.
     
  16. IndianGrad

    IndianGrad Junior Member

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    Damn! With the Wall street crashing sometime back, I could have made a killing with this!! If only I had the money to put in...