Yeah, I know you're going to say, talk to your tax professional. Don't want to bug him right now. But I want to throw out an idea. I have a Roth IRA...I've paid the taxes, so it's "my" money...To try to make more money (I'm over 59 1/2). So I can/could buy SLV for $15.85 today...Free commission and 65 cents per lot. Could I then option the Jan 21 15s for $2.06? Just make the money from the covered call option. If the stock drops below $15 in Jan 2021 I would do another covered call. Just guesstimate on costs and fees...Here I go. $1,585.65 for 100 shares. Option money $205.35 (including fees for both). The option money makes between 1 and 2% in some kind of money market fund. Come Jan 2021 I sale the stock (called away) for 1,500.65 (including fees). No taxes are involved here. For simplicity let's say the three (lots) of 65 cents wash with the money I would make on the float of the $205.35 Sorry I am poor at math...Know the general concepts but not the annualized return...ADHD as a kid. Could someone explain what my annualized return would be on this equations? Thanks...I know there is profit to be made here. Right now I would almost like to be on the sidelines with some of my money. This may be a way to be in the market, but protecting against a major correction. Thoughts??
I don't want to come across as a dick here, but if you can't run your own annualized profit calculations I don't think you're in a place to be putting down complicated trades.
Covered calls/puts to buy back, are not complicated...They are the safest option out there. If you didn't know that...Well, you can do your research. Also, in a Roth IRA, they are the only options allowed by the federal government. But of course you knew that... You can never be naked in a Roth...
15.85 (cost) 15.00 + 2.06 = 17.06 (sales proceeds + call proceeds)(if price closes above 15) 17.06 - 15.85 = 1.21 (profit if closes above 15) 1.21 / 15.85 = .076 (7.6% return over 14 months) ***Calculations don't include any fees/commissions ***Calculations are for a straight $1,585 investment, NOT margin figures.
And this is why options are not something you should play with unless you do some research first. Covered calls have the same risk profile as naked puts - meaning that you stand to lose the same amount of money on both. Look up put/call parity... or simply consider the amount of loss if SLV drops by $5 while you're holding that covered call. "Safest option out there" is a myth promoted by scammers; risks are always balanced by rewards. Otherwise, everyone in the market would be grabbing that free money.
You are correct...Example GM, GE you are left holding the bag and either have to buy it back (put) or hold till another option (covered call) can be sold again. Yes, silver could drop by almost a third in the next 14 months. But, with the amount of borrowing the federal government is doing, I believe you will not see this drop. People could rush to silver as an inflation hedge. And yes, I know with inflation my money is sitting there for 14 months earning nothing, while inflation could soar. Yet, a potential 7.6% return (tax free) over 14 months is something to consider... You are correct "Safest option out there" is not correct. But these are the only "options" allowed in a Roth. I don't make the rules...I am 64. I am very diversified in my investments (rentals, farm, CDs, home, stocks, 2 Roth IRAs, deed of trust, gold and silver coins, etc). Have assets grow (including Roth IRAs), but not income if possible. I don't want to take my SSI at this time, because I don't want to get booted out of Obamacare. I work hard for tax advantages. Wish to pass my estate on to my kids (including the Roth IRAs) tax free. I've done all covered calls/buy back puts for over 20 years. The only time I did a put was before the dot com bubble...About 2001 (QQQ). Got the concept correct, but my timing was off. It soured me to puts ever since. Just me... By the way, never got an answer...Is this legal??
Ahh, close, kinda, maybe, but not necessarily. If one sells OTM put vs. OTM covered call, the put is less risky because when initiating the covered call, one must buy shares at current market price. With the put, if it eventually gets assigned and if it's an OTM put, then the shares will be assigned at below the current market price, therefore at a lower price. For ATM and ITM, they converge.
Alternative Method: Jan. 2021 Call Spread 12/15 x 2 Buy 12 @ 4.26 Sell 15 @ 2.06 Cost = 2.20 x 2 = 4.40 Profit = .80 x 2 = 1.60 1.60/4.40 = 36.4% yield Summary: Investment of $440 with profit of $160 if SLV closes above 15. Yield = 36.4 % Max Loss = $440 ***If poor bid/ask in last week before expiration, then exercise the 12 Calls & let position be called away @ expiration. ***Commissions not included. Comparison: Covered Call: $1,585 investment .......$121 profit ........7.6% yield .....BE = 13.79 (SLV) Call Spreads: $440 investment ..........$160 profit ........36.4% yield....BE = 14.20 (SLV)
Nope. You have heard of the wheel strategy, right? Also, there are often assignment costs - so it's never quite all that smooth or simple. Each side has pros and cons; again, if there was a definable benefit to one vs. the other, it would be essentially instantly arbitraged away by large amounts of money flowing to it. There is no trivially-accessible Holy Grail, or free money, in the market; if you think you've found one, then don't post it on ET - put some money on it. I guarantee you'll learn something you weren't aware of.