What's the secret?

[Anonymous]

Anonymous wrote:

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

What you're not taking into account is that some people don't think of credit cards as easy money and don't spend much in the first place. I have credit cards and I pretty much only buy necessities. I mean, you only have my word for it, but I hate accumulating stuff, whether it be clothes or toys for the kids or whatever else. I try to spend as thoughtfully as I can, and only on things that I think will make a real improvement and fill a real need. That's just how I was raised. I don't even go to Target, because Target has a ton of junk, some of it overpriced and the occasional deal is not worth my time there. If I decide to make an extra purchase, I usually go home, think it over, and then go back to the store if I decide it's something I really want. I also usually tally up how much I'm spending before I get to the checkout counter, same as if I had cash. I'm a real believer that self-control is possible, and I don't want to carry around a ton of cash and have to go to the ATM every week.

[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!!!

DO NOT believe what this guy is trying to tell you.
It's a lot more likely to lose all your money on that call option (options expire worthless on Jan 2015) than earning the return you "dreamed" of.
Option writers (the party who sells you the options) are generally more informed than option buyers. So the odds are against you. It's like buying the lotteries.
PP, get familiar with the finance literature before you come here and fool people's money away. You're making too many assumptions that you don't even understand.

[Anonymous]

Incomes here are high - that neighbor who you think makes the same as you could be making $400k. And yes parents chip in a lot. I have a friend who just upgraded their house by over a million. Grandparents wrote a check to help. Many people with vacation homes got the money from relatives. And earning $225k with two incomes is more costly wrt commuting and child are than having a single earner and a SAH parent.

[Anonymous]

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.[/quote

There is not much more to say. If you have a brokerage account you can purchase shares in corporations e.g. Bank of America (BAC) closed at $14.65 today. To purchase 10,000 shares of BAC at the current price it will cost $140,650. That's quite a bit of cash or a large loan if you were to purchase them on margin. If you believe as I do that the economy is in recovery mode and when national economies expand the banking industry profits then you might ascribe to the notion that BAC which is only selling presently for 65% of its book value will grow in price over the next several years. Notable bank analyst Dick Bove believes BAC will double in price during the next two years to somewhere in the $28 per share range.

So, if you go to your investment broker's website and get a quote on BAC you'll find it closed at $14.65 and there will be a prompt asking you if you wish to make a trade. When you purchase shares you own them forever or until you sell them. When the market crashed in 2008-2008 the value of people's portfolios crashed as well, but for those who did not sell their shares, for the most part their shares have now returned to profitability. However there are exceptions like Citibank and G.E. the point is if you own shares you have the potential to weather the storm during down markets.

What I am suggesting is potentially more risky, but the upside is almost exponentially greater. Rather than purchasing 10,000 shares of BAC for $140,650, you would be purchasing a contract for $17,000 that guarantees you the right to purchase 10,000 shares in Jan. 2015, for $15 per share. You have to decide for yourself, but I believe on that date shares of BAC will be selling for at least $26.70.

My option contract guarantees me the right to purchase those 10,000 shares at the price of $15. I then purchase 10,000 shares times the options price of $15 equals $150,000. However, if my presumption of BAC share price appreciation to $26.70 is correct, times 10,000 shares the value of my purchase will be $267,000. Immediately after purchasing my 10,000 shares at $150,000, I will sell them at market price (Jan. 2015) for $267,000. Now I'll have, $267,000, but I have to strip away my costs of doing business which are as follows: the $17,000 spent to purchase the options contract is gone. I had use or borrow $150,000 to purchase the shares so that's not profit either. So now I've had to strip out $167,000 dollars from the $267,000 in proceeds from the sale leaving me with a $100,000 profit.

I like to use the number of 10,000 shares because it is easy to translate that any gain of $1 in share price translates into a $10,000 profit for me. Depending on the options you purchase they can expire as early as tomorrow or years into the future. In the scenario I've described the break even point is $16.70 in Jan. 2015. Anything below $15 and the trade will expire without being executed resulting in the total loss of the $17,000 spent to purchase the contract. However, the beauty of this kind of an options contract is the most you can possibly lose is your initial purchase price which in this scenario is $17,000, but the upside potential gain is only limited by the window of opportunity which in this case is more than five hundred days into the future.

I just happen to like the banks right now. Options such as this can be purchased on just about any corporation listed on the stock exchanges. Just to reiterate. To use $17,000 to purchase BAC shares you could purchase roughly 1,250 and if the price runs up $10 during the next five hundred days your profit will be $12,500. However, if you used $17,000 to purchase options contracts under the same scenerio your profit will $100,000 minus the cost of the options.

It seems a lot more complicated than it really is. You can do this!!! Be a proud and unabashed capitalist!!!

Doing research on option calls and covered calls. I know this is an old thread, but following along the BoA contract, it seems like January 2015 did not meet the $16.70 price. How did this end up turning out?

[Anonymous]

It's likely that incomes are higher than you realize. You're making 225k, your neighbors could be making 300k. I realize that's "only" 75k, but that sort of difference helps a lot when it comes to being able to splurge on luxury cars, vacations, home renovations etc. and it makes you feel like you have cash in your pocket even after all the retirement savings etc. is taken out of your paycheck.

A staggering number of Americans are paycheck to paycheck or even beyond their means. It's not like those statistics don't apply to DC families. I know people who will do anything to buy the right house and car, even if it means that they don't start funding a 401k into their 30s -- true story.

A lot of SAHMs here were in fact in biglaw before staying home. 5 yrs in biglaw, or even 2-3 yrs gets you started with a really nice nest egg esp if you lived below your means, saved/invested it all, and didn't have law school debt.

And then as others mentioned -- family help.

So your really don't know what anyone's situation is, so don't worry about it and try not to compare.

[Anonymous]

I think your neighbors incomes are probably higher than you think. Lots of people in this area are couples with two law firm partners, or highly paid consultants, doctors, business types who are both making very good incomes.

[Anonymous]

Well BAC is at $13.57 today!!
So much for the "expert".

[Anonymous]

Anonymous wrote:You will be forever poor if you buy a house worth $850K. We have a HHI of about $170K with a mortage of $1500 per month on a $200K mortgage. We also have to scrape to some extent because of one private school tuition. You will be house poor and not have the flexibility in case of a lost job, illness, child with special needs, ill relative who needs support, dental work ($7000 for one implant, I'm just saying) and so forth. You'd be surprised how much life throws at you and with all your money tied up in a house that you cannot afford on that income you will never get ahead.

You will be forever poor for wasting money on private school instead of investing in a good home in a good public school district.

[Anonymous]

Anonymous wrote:My sister and BIL have a similar HHI to ours, except that their ILs paid for her Ivy graduate education, pay for their int'l vacations every year, and they pay for anything my sister and fam buy at Target. The Target card is just paid, no questions asked, each month.

I'm envious, but happy for my sister at the same time. She is the best, and very hardworking herself.

We have no such help from either side, ever. We vacation close by with my ILs each year, and they pay, and this is for us to be very very grateful for, even though I hate that week.

My ILs act like they wrote the book on the correct way to do everything, so smug. They drive fancy cars, brag that they have no mortgage and buy everything in cash. I wonder if they are aware of what other parents do for their families. Sometimes I fantasize about mentioning the paid for cruises, Target cards to them, just to see their faces.

When it makes sense, casually work it into the conversation, one little nugget at a time. I hate that smugness.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You will be forever poor if you buy a house worth $850K. We have a HHI of about $170K with a mortage of $1500 per month on a $200K mortgage. We also have to scrape to some extent because of one private school tuition. You will be house poor and not have the flexibility in case of a lost job, illness, child with special needs, ill relative who needs support, dental work ($7000 for one implant, I'm just saying) and so forth. You'd be surprised how much life throws at you and with all your money tied up in a house that you cannot afford on that income you will never get ahead.

You will be forever poor for wasting money on private school instead of investing in a good home in a good public school district.

+1. You'll make a return on the house. You won't make a return on the private school.

[Anonymous]

We made $400K last year (usually make $200K but DH had a big deal go through) and I totally thought we were all set and wouldn't have to worry about every purchase, but here I am still deciding if its worth it to splurge on the $4 cereal or stick with the one on sane for $2.50.

Part of it is your mindset. We don't go on fancy vacations, have 2 2007 cars, wear mostly hand-me-downs, no cable, rarely eat out, and save only the matched 5% for retirement. But we pay for 3 private school tuitions ($45K last year) + a nanny share ($18K last year) and we paid off a $65K student loan. After taxes, we weren't really left with as much as I thought, even though it was double what we made in the past.

[Anonymous]

Anonymous wrote:We made $400K last year (usually make $200K but DH had a big deal go through) and I totally thought we were all set and wouldn't have to worry about every purchase, but here I am still deciding if its worth it to splurge on the $4 cereal or stick with the one on sane for $2.50.

Part of it is your mindset. We don't go on fancy vacations, have 2 2007 cars, wear mostly hand-me-downs, no cable, rarely eat out, and save only the matched 5% for retirement. But we pay for 3 private school tuitions ($45K last year) + a nanny share ($18K last year) and we paid off a $65K student loan. After taxes, we weren't really left with as much as I thought, even though it was double what we made in the past.

I, personally, can't imagine how you pay for three private school tuitions and a nanny share on your normal $200k.

[Anonymous]

Anonymous wrote:We made $400K last year (usually make $200K but DH had a big deal go through) and I totally thought we were all set and wouldn't have to worry about every purchase, but here I am still deciding if its worth it to splurge on the $4 cereal or stick with the one on sane for $2.50.

Part of it is your mindset. We don't go on fancy vacations, have 2 2007 cars, wear mostly hand-me-downs, no cable, rarely eat out, and save only the matched 5% for retirement. But we pay for 3 private school tuitions ($45K last year) + a nanny share ($18K last year) and we paid off a $65K student loan. After taxes, we weren't really left with as much as I thought, even though it was double what we made in the past.

That is a horrible decision to send your kids to private instead of saving for retirement. Unbelievable.

[Anonymous]

Anonymous wrote:

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

I feel the opposite. I use cash so rarely that whenever I do, it feels like Monopoly money. I just check my Mint app all the time, so I can see how the budget lines are inching along. Not making any of my budgets go into the red zone is really motivating.