Join our investing community

strategy for income

Discussion in 'Investing Strategies' started by Triu, 20th Sep, 2006.

  1. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Hi can anyone advise what would be the best way to invest for income trading shares or options with leveraged margins. What does anyone think?

    thanks
     
  2. See Change

    See Change Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    59
    If you had the ability to do either , you wouldn't need to ask the question.
    Most people who trade shares don't make money. Adding in leveraging will just help yo loose quicker.

    To start trading shares is a long term investment in your education. Don't expect to make money any time soon.

    The people who make money are the ones who loose , but catch the share bug and persist until they learn how to make money .

    See Change
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    I have a significant holding in the NavraInvest funds for this purpose - they have paid 15%+ income in recent years (no guarantees that will continue of course).

    You might also like to check out the Living on Equity series of articles for some ideas on how to live off the growth in your portfolio rather than the income.

    The main question that needs to be answered first of course is ... what is your reason for wanting to "invest for income" ? What is you goal in doing so ?
     
  4. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Great advice guys :)
     
  5. rambada

    rambada Well-Known Member

    Joined:
    5th Sep, 2005
    Posts:
    58
    No background in this but what about covered calls or 'buy write' as its sometimes refered to. Has anyone used this as an income stream? I believe this is a part of Peter Spanns income strategy.
    I have heard negative comments but it seems to be because people have to sell the underlying shares. But if the strategy is used purely to produce income from the call fee and if the shares go then to bad so sad (you've made money anyway), I cant see a problem.
    Thoughts anyone?
     
  6. Cheeks

    Cheeks Member

    Joined:
    3rd Jun, 2006
    Posts:
    20
    Location:
    Karratha, WA
    I'm currently writing covered calls on US stock.

    I've only been writing for 2 months now so I'm no expert. First month was not a full month (loss of time value) and I achieved 2.7%, this month I'm looking at 4.9% if I'm not exercised and slightly less if I'm exercised due to brokerage costs.

    I’m going to be making a big effort to make covered call writing work for me as a means of increasing my income.

    This is purely a method of creating income for me so I'm not concerned about loss of potential capital growth.

    I have no concerns about being fully exercised on all my stock at the end of the month as long as I has made my % (aim is to make 3% per month).
     
  7. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Cheeks sounds very interesting. Please keep us posted on your progress.

    Are you able to elaborate a bit on your strategy for picking the appropriate options to write?

    Cheers
    N.
     
  8. Cheeks

    Cheeks Member

    Joined:
    3rd Jun, 2006
    Posts:
    20
    Location:
    Karratha, WA
    I pick stock and covered calls under the following rules:

    1) Scouter rating of 7 or above (I prefer 9 or 10).
    2) Yield greater than 3% after brokerage costs per contract
    3) Stock trend must be sideways for 2-3 months as a minimum. Stock trend can be up but it has to be sustainable.
    4) I look for levels of support in the stock price to determine if I'm buying at the right price.

    I work out my break even (stock price - premium) and I work out my stop loss (break even *0.95).

    You can get the scouter rating from
    H-SPHERE

    And I use google finance to determine the trend of the stock and get news updates.

    Rules 1 and 2 are fix and rule 3 is very much on your own opinion about the stock.

    It's not complex at all, the hardest thing is getting started :)

    I seem to be spending around 2hrs working on it on the first day of the month (I'm a little slow) and then about 1min everyday checking my email update on my stock prices (very little time for a good return).
     
  9. Redwing

    Redwing Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    476
    Location:
    PERTH..WA
    Cheeks is that for US of A Stocks only ?
     
  10. Cheeks

    Cheeks Member

    Joined:
    3rd Jun, 2006
    Posts:
    20
    Location:
    Karratha, WA
    Yes, US stocks only.

    Stock I have been writting covered calls on are:

    BMY (exercised last month)
    QCOM (current)
    IMCL (current)
    FDRY (current)

    Not all of these stocks fit my rule 3 but in my opinion they had dropped to a level of support so I felt comfortable buying them, pluse the premium was so good it dropped my breakeven point significantly below the stocks level of support.

    I haven't written covered calls on Aus stock.
     
  11. OC1

    OC1 Member

    Joined:
    17th Sep, 2006
    Posts:
    5
    Location:
    Melb
    Hi guys

    I write covered calls on Aussie stock. Its great as an incoime source as long as its done consistently.

    My methods a little different to Cheeks.

    Cheers

    Oscar :)
     
  12. Cheeks

    Cheeks Member

    Joined:
    3rd Jun, 2006
    Posts:
    20
    Location:
    Karratha, WA
    Care to elaborate on your method :)

    What is your monthly return?

    What stocks do you write CC on?
     
  13. OC1

    OC1 Member

    Joined:
    17th Sep, 2006
    Posts:
    5
    Location:
    Melb
    The stock has to be trending up or sideways at worst

    Minimum 2.5% return. I leverage this with instalment warrants to 5%.

    Has to be a liquid (the option contract)


    I look at TA and make sure there is no major overhead resistence when opening a new position. I usually write the option 1 strike price out.

    Cheers

    Oscar :)