What's the secret?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Unfortunately, this post confirms the negative stereotype I have of modern "capitalists." It's all just a numbers racket of puts and calls and options, devoid of actually doing anything (building a factory, hiring people, creating a product). If you can navigate the analytics and tax laws, you can make money.

But, I guess that's why I've never figured out "the secret".

+1

+2 and in the end, Bank of America wins.

[Anonymous]

Karl, I know that's you. It's time to come out of your tent and to come home. All of of your friends have gone. You are the only person left occupying Wall Street.

[Anonymous]

Ignore the naysayers! So many people in the DC area are against capitalism and have a lot of resentment for those of us willing to take risks.

I thank the poster who is offering their insight and detailed explanation on options trading.

Do your own due diligence and act accordingly. As the PP mentions, if you don't like BAC, look at some other companies. Don't bet the farm, but allocate a percentage of your portfolio to this strategy and see the results.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Tip of the day.

Buy the Jan. 2015 Bank of America, Call Option.

It wil cost you about $1.70 per share at the strike price of $15.

Buy 10,000 = $17,000

Present Real Time Price 14.64.

You would be buy the rights to purchase 10,000 Shares of BAC at $15 in roughly 510 days from today. In order for you to break even the share price during the next 510 day must rise to $16.70. Beyond that price would be making a profit. Any price below $16.70 and you'd be taking a loss.

For every dollar it sells for over $16.70 in January 2015 you'll be making a profit of $10,000. If BAC ran up to $26.70 (and it will) during the next 510 days your profit will be $100,000 minus the $17,000 you paid today for the Call Option for a net profit of $83,000.

Could you elaborate? I'm really curious if this is reliable.

What the poster neglects to mention is the downside. If you buy $17,000 worh of options and it doesn't go over 16.70, you loose $17,000. All of it. So, unlike stock, it's truly a full-on bet for $17k. You can also buy some puts to hedge the downside but increase the volatility you need to see to make a return.

I believe I did include the risk, but if not I'll try again and clarify a mistake you seem to have made. The premium price for the options is $1.70 per share sold in 100 share blocks and the strike price is $15 in Jan. 2015, giving you the right to purchase a quantity of BAC shares equal to the number of options you own. So today, you've invested $1.70 for the right to purchase shares at $15 in Jan. 2015. The goal you are trying to achieve is for BAC shares to be selling in the market for a price greater than $16.70 in Jan. 2015.

Anything above $16.70 you are making a profit. Anything between $16.70 and $15 and you are incrementally losing the $1.70 premium times the number of options you've purchased until you reach the $15 per share price where the entire 1.70 per share premium will be permanently lost.

So the upside is infinite, however realistically bank analyst Dick Bove expects the price of BAC to double in two years. With the share price currently at $14.65, if you believe in our ecoconomic recovery it's not too difficult to imagine the share price of BAC being greater than $16.70 in Jan. 2015 where you would begin to make a profit.

Where the PP is mistaken is that the option gives you the right the execute your trade in Jan. 2015 at $15 regardless of the market price at that time. So, if you did not profit from the price being above $16.70, you could still mitigate your loses by executing the trade at any point above $15 per share. If the price on the expiration date was $16.00, you would still make the trade because it would reduce your loss from $1.70 per share to $.70 per share. So in larger terms of 10,000 options at $1.70 the cost is $17k where it is reasonable to believe over the course the next 500 plus days the share price will appreciate $12 to the $26.70 range at which time the owner of said options will enjoy a profit of roughly 10,000 times $10 (the difference between $16.70 and $26.70) equaling a gain of $100k. Clearly, depending on the share price in Jan. 2015 the gains could be less or even greater, and the potential for losing money always exists, but potential for loss will never be any greater than the options premiums you have spent to purchase the options.

Also, options are traded in the market daily just like shares themselves so at any point when you feel you've made enough profit or you feel the risk is too great and you want to get out, you just trade/sell the option to someone else. As the price of the stock appreciates the price of the options appreciate as well. So, you are not stuck in the trade until in this scenario until Jan.2015.

If you believe in the U.S. economic recovery this is a good options trade. However, if you feel dower about our economic recovery during the next year and a half this is a trade you should avoid.

The secret is to leverage your money wisely. This is just one option presented to you from the millionaire who lives next door. I'm not rich and there are many, many people who are much smarter than me, but I do okay.

You can do this!!!! You can be a successful capitalist!!!

Or the pithy version: "The PP said you lose everything at $16.70 or less, but probably meant $15. Just to clarify."

[Anonymous]

Anonymous wrote:My DH and I make a solid income (approx 225k) and live very frugally. We figured that after years of saving and having responsible spending habits that we would be further along financially. We see so many people around us, with nicer cars, houses, vacations, etc. What is the secret to building wealth - real estate, the market, or should we stick with our slow and steady approach? We are trying to get to that next level, and it doesn't seem like we can do it on this income!

Those that seem to have nicer stuff are more than likely living beyond their means. If you are living frugally you are doing the right thing. Could you have a cheaper mortgage? What about not eating out as much?

Real estate is a great road to wealth if you do it right.

But overall just remember that those around you likely do not really have more money than you, they are just acting like it.

[Anonymous]

Anonymous wrote:Ignore the naysayers! So many people in the DC area are against capitalism and have a lot of resentment for those of us willing to take risks.

I thank the poster who is offering their insight and detailed explanation on options trading.

Do your own due diligence and act accordingly. As the PP mentions, if you don't like BAC, look at some other companies. Don't bet the farm, but allocate a percentage of your portfolio to this strategy and see the results.

I don't care that you're taking risks and making money (good for you!), but don't call it capitalism, call it what it really is: gambling. And recognize that this type of behavior is what has made the financial world so topsy-turvy, often at the expense of the poor and middle class. I certainly don't hold you responsible for this system just because you are savvy enough to take advantage of it, but don't fool yourself into thinking you are being productive or some sort of "capitalist." You're making money in a perfectly legal way and that should be good enough.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Ignore the naysayers! So many people in the DC area are against capitalism and have a lot of resentment for those of us willing to take risks.

I thank the poster who is offering their insight and detailed explanation on options trading.

Do your own due diligence and act accordingly. As the PP mentions, if you don't like BAC, look at some other companies. Don't bet the farm, but allocate a percentage of your portfolio to this strategy and see the results.

I don't care that you're taking risks and making money (good for you!), but don't call it capitalism, call it what it really is: gambling. And recognize that this type of behavior is what has made the financial world so topsy-turvy, often at the expense of the poor and middle class. I certainly don't hold you responsible for this system just because you are savvy enough to take advantage of it, but don't fool yourself into thinking you are being productive or some sort of "capitalist." You're making money in a perfectly legal way and that should be good enough.

Hey Buddy,

You don't know anything about me, where I've been, what I've done. what I do, or what I produce. So go crawl back into your sanctimonious little cave with your Cliff Notes version of Das Kapital and don't come out again until you can demonstrate proof of having lived an altruistic life yourself.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Ignore the naysayers! So many people in the DC area are against capitalism and have a lot of resentment for those of us willing to take risks.

I thank the poster who is offering their insight and detailed explanation on options trading.

Do your own due diligence and act accordingly. As the PP mentions, if you don't like BAC, look at some other companies. Don't bet the farm, but allocate a percentage of your portfolio to this strategy and see the results.

I don't care that you're taking risks and making money (good for you!), but don't call it capitalism, call it what it really is: gambling. And recognize that this type of behavior is what has made the financial world so topsy-turvy, often at the expense of the poor and middle class. I certainly don't hold you responsible for this system just because you are savvy enough to take advantage of it, but don't fool yourself into thinking you are being productive or some sort of "capitalist." You're making money in a perfectly legal way and that should be good enough.

Hey Buddy,

You don't know anything about me, where I've been, what I've done. what I do, or what I produce. So go crawl back into your sanctimonious little cave with your Cliff Notes version of Das Kapital and don't come out again until you can demonstrate proof of having lived an altruistic life yourself.

What are you so upset about? Who said anything about your life or altruism or caves? I'm sure you're a perfectly nice person, you just seem to have deluded yourself into thinking that gambling and capitalism are the same thing. Do you have any actual argument against that? And I'm ashamed to say it, but I've never even read the Cliff Notes version of Das Kapital!

[Anonymous]

I agree with previous posters that MANY people around here have help from family. It may not be a big inheritance, but even free family babysitting or childcare, or free vacations, or parents who pay for kids school or classes, or put money in their 529s. You get the idea.

[Anonymous]

Capitalist- from Mirriam-Webster Dictionary

: a person who has a lot of money, property, etc., and who uses those things to produce more money

: a person who believes that capitalism is the best kind of economic system

From me: a capitalist is simply an individual who uses their capital (money) to earn profits. Capitalism can include real estate, stocks, bonds, industry, retail, agriculture and a thousand other ways in which individuals are able to invest capital/money to create profits and wealth rather than surviving by selling one's physical labor.

[Anonymous]

Anonymous wrote:Capitalist- from Mirriam-Webster Dictionary

: a person who has a lot of money, property, etc., and who uses those things to produce more money

: a person who believes that capitalism is the best kind of economic system

From me: a capitalist is simply an individual who uses their capital (money) to earn profits. Capitalism can include real estate, stocks, bonds, industry, retail, agriculture and a thousand other ways in which individuals are able to invest capital/money to create profits and wealth rather than surviving by selling one's physical labor.

Aren't we all capitalists?

[Anonymous]

Anonymous wrote:Capitalist- from Mirriam-Webster Dictionary

: a person who has a lot of money, property, etc., and who uses those things to produce more money

: a person who believes that capitalism is the best kind of economic system

From me: a capitalist is simply an individual who uses their capital (money) to earn profits. Capitalism can include real estate, stocks, bonds, industry, retail, agriculture and a thousand other ways in which individuals are able to invest capital/money to create profits and wealth rather than surviving by selling one's physical labor.

So according to this rather loose definition, the schmuck earning 0.01% interest in the bank and the gambler are both big time capitalists. Hey, even I'M a capitalist! Woo-hoo! Seriously, Mr. Millionaire-next-door, you should be more secure in your sense of self than this, and should understand the pps above who are criticizing the contribution (or lack thereof) that things like options trading make in our economy.

[Anonymous]

Anonymous wrote:OP, I feel I could have written what you wrote. Same income, somewhat cheaper ($650K) house, and also feeling like our peers have more than we do. But - we have no family money, no help of any kind, paid for college ourselves (just paid off my loans last year), now child-related expenses. And we have more conservative views of finances (no credit cards, no car loans, etc.) We are also saving aggressively, to the tune of 6K/month. Some day it will pay off, I hope. Or we'll just die saving.

Do you mean you have no credit cards at all? I automatically pay all the balances on all my cards every month, but I use them strategically to get the maximum # of rewards points. Usually we get a few hundred dollars per year back. I think if you have the self-control it's an easy way to get money back.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, I feel I could have written what you wrote. Same income, somewhat cheaper ($650K) house, and also feeling like our peers have more than we do. But - we have no family money, no help of any kind, paid for college ourselves (just paid off my loans last year), now child-related expenses. And we have more conservative views of finances (no credit cards, no car loans, etc.) We are also saving aggressively, to the tune of 6K/month. Some day it will pay off, I hope. Or we'll just die saving.

Do you mean you have no credit cards at all? I automatically pay all the balances on all my cards every month, but I use them strategically to get the maximum # of rewards points. Usually we get a few hundred dollars per year back. I think if you have the self-control it's an easy way to get money back.

What you aren't taking into account is how much more you spend by putting items on the credit card in the first place. When we switched to cash only, we started saving hundreds a month because it wasn't nearly as easy (emotionally) to hand over cash as it was to swipe that credit card. When you're looking down at the checkout conveyor belt at Target and you're about to hand over real cash money to pay for it, you start getting really choosey about what you buy. Because when that money's gone, it's GONE. Really helpful for keeping yourself in check. I would guess that you could save far more by ditching the credit cards and using a cash budget than you could ever get in rewards points. It definitely helped us a ton!

http://www.cmu.edu/homepage/practical/2007/winter/spending-til-it-hurts.shtml

[Anonymous]

Anonymous wrote:OP, the secret around here is that many people have incomes they are not telling you about. Inheritance, properties they own, help from parents, real estate run ups. It is emphatically not polite to talk about it, so very few do. Years later, after the fact, you find out the granny left them a little help. Also some people are in debt to their eyeballs. The best you can do is to mind your own financial house as best you can.

This. Another umbrella alot of wealth scheme falls under is rate of return.

Money borrowed at low rates to buy apprecheating assets that is steadily paid off (usually just the principal).
1. High return assets
2. Low borrowing cost
3. Steady payment of just prinicpal

Real estate and stocks fall under this. 90's was tech stock then real estate bubble. You can still do this with real estate in some parts of the country.

Alot of the really wealthy were born wealthy or got lucky when 1-3 hit them in the right time. All others are just posers on debt, if they can manage that debt for ever then they really are rich.