Options AKA Renting out shares.

[kissfan]

Hi All.

Having seen Peter Spann (& read his books), and read books or seen DVD's from other people including Jamie McIntyre, Warren Borsje etc I was wondering if anyone here is actually doing the options part of their strategies (please note, this is not intended to be a discussion on the worthiness of the above named people).

In theory all we have to do is get equity in I/P's, buy the shares (using equity), insure the shares then rent them out every month (not the technical terms I realise, but terms that are commonly used for better understanding) for a good return.

My obvious concern is that all costs are covered. Mostly mentioned is the price you get "in rent" less the "insurance paid" as well as any profit you make if you sell the shares , but what about the interest (from equity use) and brokerage costs?

Real estate has always been my first love (when talking about investing), but have recently been thinking of ways to boost income.

Is it really as easy as it is made out to be?

Would appreciate hearing from anyone who is making a reasonable income from options.

Regards
Marty

 

[keithj]

Hi Marty,

Some threads of interest -

http://www.somersoft.com/forums/showthread.php?t=18976
http://www.somersoft.com/forums/showthread.php?t=16463

Cheers,

Keith

 

[The Y-man]

Hi Marty,

Covered call incomes have not been brilliant in our experience so far, however, it has been profitable in unintended ways.

We have held the positions unhedged (not sure if wise).

Brokerage costs and options fees can be a large component if your trade small quantities - so do your numbers carefully.


Most of our positions were exercised earlier this year (at a profit).

Is it easy? As with anything, a lot comes with experience. We are still learning - after a year or so...... Peter Spann suggests it will take a good 5 years before you really become proficient at it (picking the right conditions etc).

It is similar to property investing in that it takes some time (and research) before you start recognizing a bargain or a bomb.

Start options with the view to getting experience initially - don't go in expecting to make huge money from the word go.

Cheers,

The Y-man

 

[kissfan]

Thanks again Keith.

Stupid me. Have been on here long enough to realise I should have done a search first. It was just that I was revising a dvd I had and was thinking ahead of myself. Thanks again. Will start reading those threads.

Regards
Marty

 

[Ol School Skata]

Kissfan,

I have been doing some research and following paper trades with writing covered calls for the past 12 months or so. Decided to give it a go on LHG - small priced share so able to write a few contracts for initial investment. Return so far has been avg 1-2% net each month, but have suffered a bit this current month having to buy back my initial position, but just means i get to write calls for this coming month at a higher exercise price.

LHG is probably not a good share to start on but to make it feasible for me due to my low initial capital, was offering the best yield as compared to other stocks (WBC, ANZ, TLS etc). Brokerage and OCH (Options Clearing House) fees can eat into your premium, again this is why i chose LHG. I use an online broker to keep costs down but recognise that i may be missing getting some advice by not using a full service broker.

I have not been exercised to date, most contracts expired - this was the first month i have had to buy back or "roll up" (buy expiring contract back and sell contracts for next coming month above market price - out of the money)


I have also been buying options on i guess, speculation, attempting to trade with the trend although have not placed any trades lately - money going to a propety reno instead.

Hope this helps a little.

OSS

 

[Les]

Woohoo - July is nearly upon us.....

Don't worry, Ol' School,

July is nearly upon us, and things should change markedly. I'm VERY MUCH a beginner in shares, but I've noted that:-

1. Lots of people sell off "non-performing" shares in June (to lock in the losses so they can be used to offset gains) and

2. The new Fiscal Year often seems to start out "with a hiss and a roar" in most shares.

Good luck with your trading/investing in shares too (I'm wishing ME the same )

Regards,

 

[Ol School Skata]

Follow up from last month

I have recovered some of my position i had to buy back last time

wrote options at 3.5c per share for the month - closed out a few days later at .01
and just wrote more July 130 options at .02c.

Also have the rise in price between initial purchase of shares and ex price if i am exercised at the end of the month another 5%

OSS

 

[The Y-man]

I have recovered some of my position i had to buy back last time

wrote options at 3.5c per share for the month - closed out a few days later at .01
and just wrote more July 130 options at .02c.

Also have the rise in price between initial purchase of shares and ex price if i am exercised at the end of the month another 5%

OSS

Good going!

We have covered calls July LHG @ 1.20 - so we'll probably get exercised, but we'll come out with about 17%pa (equivalent) on combined cap gain and income so can't complain

Cheers,

The Y-man

 

[Ol School Skata]

July/August Calls

Just an update to anyone interested in the covered call strategy to make up for neg geared props...
My LHG July 130 call options expired (i kept the premium) and have written calls again this month August 130 calls receiving a good premium 5c per share or $50 per contract. Will see how this month treats me

I am not concerned about exercise as i would be exercised at a healthy profit to my original purchase price.

OSS

 

[The Y-man]

Just an update to anyone interested in the covered call strategy to make up for neg geared props...
My LHG July 130 call options expired (i kept the premium) and have written calls again this month August 130 calls receiving a good premium 5c per share or $50 per contract. Will see how this month treats me

I am not concerned about exercise as i would be exercised at a healthy profit to my original purchase price.

OSS

...and as predicted ours got exercised, but at a healthy profit, so quite happy too.

Cheers,

The Y-man

 

[redwing]

Cc

Good work..keep us posted..

REDWING

 

[Panda]

Hi Kissfan,
I have been doing some research into this as well. So far I have read some of peter Spanns material and 2 of louise Bedfords books (which I would recommend) the ASX site has some good material on it as well. The ASX is very good on the information front in my opinion.

I am currently engrossed in a reno at the moment so I have put it to the side for the moment. From my research it would seem that although the concept is straight forward, like anything it will take some time to research and execute properly.

There is a free course that you can do on Jamie McIntyre's site. I have only browsed it at this stage, but looks quite in-depth.

Cheers,
Panda

 

[Ol School Skata]

How about...

Y-man

I have been considering using a margin loan to buy LHG shares and do the cover call strategy with on a 35 - 40% LVR. As LHG pays no dividends, my first assumption is that the interest on the Margin loan will not be tax deductible...

But.. considering i will be writing call options on these stocks, will this count to me being classified as a trader therefore all premiums being classified as income rather than capital gains?

Or how about if i use the margin funds to cover the cash position from writing put options out of the money? My logic is as follows

Write say 50 LHG put options one strike price below market price. Use margin loan funds for the collateral. This collateral is put into cash management account (paying 4%) and taken by the ASX as margin cover and paid approx 5.5% i believe. Anyway - i would then be receiving income from the margin loan funds

am i getting too deep for this forum? If so, can anyone put me in touch with an appropriate forum?

regards

OSS

 

[Panda]

Hi Ol School,
You’re not getting too deep for this forum in my opinion. However, I suppose it is primarily concerned with property investing. A diverge from property into this area I think is relevant to this forum as this technique can be used to create cash flow and offset the costs of negative gearing. Anyway,

Try this forum, http://www.aussiestockforums.com/forums/ from what I have found it looks to be the best and there are some very knowledgeable investors over there it would seem. Please let me/us know if you find any others that are worth checking out.

Cheers,
Panda

 

[Merovingian]

Try this forum, http://www.aussiestockforums.com/forums/ from what I have found it looks to be the best and there are some very knowledgeable investors over there it would seem. Please let me/us know if you find any others that are worth checking out.

Thanks for the link, Panda — I've bookmarked it.

I know there are other shares-based forums out there, and a couple that a fair number of SS members are a part of. Are you able to list these also, (anyone, that is).

Thanks.

 

[redwing]

CC No No

Oz`Stock forum members not too keen on the Covered Call strategy from memory..

A great site though with knowledgeable members..

 

[The Y-man]

Y-man

I have been considering using a margin loan to buy LHG shares and do the cover call strategy with on a 35 - 40% LVR. As LHG pays no dividends, my first assumption is that the interest on the Margin loan will not be tax deductible...

But.. considering i will be writing call options on these stocks, will this count to me being classified as a trader therefore all premiums being classified as income rather than capital gains?

Or how about if i use the margin funds to cover the cash position from writing put options out of the money? My logic is as follows

Write say 50 LHG put options one strike price below market price. Use margin loan funds for the collateral. This collateral is put into cash management account (paying 4%) and taken by the ASX as margin cover and paid approx 5.5% i believe. Anyway - i would then be receiving income from the margin loan funds

am i getting too deep for this forum? If so, can anyone put me in touch with an appropriate forum?

regards

OSS

Hi OSS,

Tough question..... to which I would have to plead ignorance

In our situation, we do declare ourselves traders, as we do a relatively large number of other options/shares trades.

Cheers,

The Y-man

 

[Panda]

Yeah I noticed quite a few investors over their not really recommending that strategy, however, in there lies the value. Similar to anything I suppose you go in thinking your going to do one strategy and then as you learn more you start to see better opportunities perhaps.

I know for a fact that there are a few investors on that forum using that strategy though.


Here is another link, its a smaller forum. I have not spent much time on this one so I’m not sure what its like.

http://www.shares.com.au/forum/

Cheers,

Panda

 

[see_change]

My personal recommendation for a stock forum is reefcap.

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi

There are quite a few people from within the industry there, the owner Nick Radge has recently left Maquarie Bank ( when his options were cashable .... )runs courses and has written a book interviewing full time traders. He knows what he is doing along with several other members who I have been watching , chatting to over the last 4-5 years eg Tech /A, N40K , Stevo and Kaveman ( the resident amibroking programming guru ) .

You won't get the ramping that you get on Hotcrapper.

See Change

 

[Ol School Skata]

Thanks for your replys. I have attempted to discuss the matter with my accountant and others and judging by the silence on the end of the phone or garbled answer on what options are and do i get the impression their face is something like this

i will keep looking for some answers on this. Get back to you all soon

OSS