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I am at a 25% return on my portfolio YTD. In an effort to allow full disclosure, I want to show my actions taken since changing to Optionshouse (for lower comissions) in late April. Unfortunately, I am having some problems with E-Trade getting historical cost basis for some of my positions, one of which being a very lucrative Sprint position. I am only showing positions that have been bought and sold since going to Optionshouse.

 

My current positions have unrealized gains of $701 and unrealized losses of -$1010, for a net of -$309.

Overall my account has grown from about $11000 to $13,751 ($2,751 gain, +25.00% gain, 48.8% annualized) this year. Times have been good and Ill still be happy to finish anything over 10% for the year.

Note: Some transactions have not been reconciled due to Etrades lack of records after the transfer of my account to optionshouse (for better comnission rates).

Disclaimer: No investing should be made without consulting a professional. Nothing on this website should be used for decision making of any kind.

Stocks return over 10%I am happy to announce to my readers, that my personal stock portfolio is currently over 10% return for the year. In fact it is up 11.8% as of July 10th close. Additionally, there is still 174 days left in this year. How have I been so successful?

The Good:

  • I straddled Best Buy (Symbol: BBY), sold on a bounce and then sold again on a free-fall.
  • I was long on Sprint (Symbol: S) for a return of about 12% on my total portfolio.
  • I shorted Monster (Symbol: MNST) for a very quick 11% gain, or about 1.5% return on total portfolio
  • And a bunch of various smaller trades, including GE, MET, DOW, AAPL.

The Bad:

  • I sold out of Amazon at a bad time to take a massive loss
  • I bought into Netflix (Symbol: NFLX), thinking that it was ready to regain $100+ a share.
  • I bought HP (Symbol: HPQ), and it was a dud.
  • My conservative cover call positions, really didn’t pan out to be too successful. Most were gains, but fraction of percentage gains.

Why such a long delay on an update? Because I changed brokers. Because I deal with such small amounts of money, I decided to go to OptionsHouse from Etrade. They had a promotion that they would transfer it over without cost and I decided to jump. Do I like OptionHouse More? Yes and No. The fees are substantially cheaper, but the interface isn’t as good as some of the Etrade products. However, the fees are so much cheaper, that I will continue to stay with OptionHouse. Five bucks for a option trade of 5 contracts or less, hard to beat.

There was a little but of a hick-up though, one of my cost basis did not transfer over properly and they solved one problem, but made another. They added the cost basis (that I had to give them via email), but it immediately showed up as a gain.

Regardless, be prepared to have more stock portfolio updates and recommendations. At this current rate I could even hit a crazy 20% by the end of the year (or lose the 11% I have gained thus far).

Why You Will Never Be A Millionaire Making $50k a Year

Are you the type of person who constantly strives toward becoming the next millionaire? You might think that with a frugal lifestyle and proper investing, you will obtain the status of self made millionaire excluding your retirement benefits. Sadly the truth might be, that if you are not making a lot of money, your odds of becoming an inflation adjusted millionaire aren’t very good.

An example would be an individual making $50,000 a year will probably have approximately 25% (or more) of their money going to health care and taxes, bringing their monthly take home to roughly $3,100. Depending on where you live and your lifestyle, there is a good chance that you will likely have at least a base level of expenses of roughly $1250 – $1750 (rent, food, phone, utilities, clothing, and etc.) Now of course there are exceptions to this such as living rent free with a relative, but in most scenarios, about half of your take home pay evaporates every month. If this person was a financial martyr and didn’t buy anything, take any vacations, drove an old car, etc., its reasonable to think they could scrap up $1,500 every single month.

Assuming 6.215% yearly growth, how much do you think this $1,500 a month would be in 10 years? If you said a million dollars, you are wrong. It’s a quarter of a million dollars unadjusted to inflation. Assuming 2.5% inflation, it’s only $195,299.  If you continue to save $1,500 a month for the next 20 years (30 years total), you would now have $1,706,600 unadjusted for inflation, but let’s not forget capital gains taxes. If taxes remain constant, you are looking at paying about $175,000 (or more) in taxes. After taxes and again assuming 2.5% inflation, this amount would only equal $730,183 after inflation.

Even though this individual saved $1,500 a month for 360 months, they would still not have an inflation adjusted million dollars in thirty years. Imagine where you are 30 years from now. It is possible that your income has increased, but most likely your responsibilities have as well (kids, housing, etc.). Can you imagine saving $1,500 a month on a $50,000 income? I make more than $50,000 a year and I only save approximately $400 a month.

So what is the point of this article? To offer perspective on becoming a millionaire by just being frugal. Most likely most people with careers will become millionaires when including retirement accounts, pensions, social security, etc., but the idea of becoming a self made millionaire by only living frugally might not be the best approach. The best way to become a millionaire is a combination of living frugal and increasing ones income whether that be through a promotion, side business, or a spouse working.

Straddling Best Buy Stock (Symbol: BBY)

Best Buy Stock 2012On Friday, I decided it was time to straddle Best Buy’s Stock (Symbol: BBY). For those of you who are not aware of what a straddle is, a straddle is taking a position both up and down. At first this might seem counter productive, but a well executed straddle can be very lucrative. Let me first tell you exactly what position I took and how I hope it will pan on.

I purchased two options:

BBY – Jan 19th, 2013 – $23 Call – Cost $2.38 each, Quantity 2
BBY – Jan 18th, 2014  – $20 Put – Cost $3.89 each, Quantity 3

The stock was trading for $22.43 at the time of purchase. Now the question quickly becomes, why in the world would you want to take Best Buy both ways? Because my gut feeling is that the stock is doomed, but It is possible for a “dead cat bounce” (unsupported upward movement before ultimately falling). This stock might be oversold believe it or not. Best Buy’s stock was trading for roughly $30 a share at the beginning of the year  and over $40 the year before that. Now when I say I think the stock might have a “dead cat bounce” in it, I’m not thinking its going to shoot up $10 a share, I’m thinking more like $3-6 (complete guess).

I should also disclose that my Call option is only for 9 months, while my Put option is for 1 year 9 months. It is a straddle, but it’s ultimately I’m more short than long. So how will I profit? Hopefully a visual ad of this will help. Below shows the two options and where they each become profitable along with their expiration dates.

Best Buy Stock 2012

I am hoping that the stock bounces up before the 2013 and ultimately tanks in 2014. A made a sense hypothetical result picture below. Now these numbers are just to illustrate a point. I have named the chart “perfect world result,” because the odds of this happen are very slim.

 

Best Buy Straddle

If the “Perfect World Result” happened, I would have purchased 200 shares for $23 and sold for them for $34 a share (profit of $2200, that’s if I liquidated the shares immediately, remember I own 2 options). I later would also have purchased 300 shares for $11 and immediately sold them for $20 a share (profit of $2700, I own 3 options). That would be $4,900 minus my cost $1254 + commissions (roughly $1300).  This would be a 276% return on my money.  Now the chances of this happen are very slim, but this example is just to illustrate how this straddle works.

Possible Other Results:

  • Stock goes to $11 a share by 2014. ——————-Result: +$1446,  115%  return.
  • Stock goes to $15 a share by 2014.——————Result: +$246, 19.6% return.
  • Stock goes to $35 a share by 2013. ——————Result: +$1146,  91.3% return.
  • Stock goes to $30 a share by 2013. ——————Result: +$146,  11.6% return.
  • Stock never leaves the $20 to $23———————Result: Options are worthless. 100% loss.
  • Stock finishes at $18 a share. –————————–Result:  $-654, 52.15% loss.
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