Retire By Thirty

Showing posts with label Part 1 - In The Beginning. Show all posts

Capital Gains Opportunity - The SLV Call Option (Part 2)

In Capital Gains Opportunity - The SLV Call Option (Part 1), I discussed the basics of options trading, reading the daily and weekly charts, and the purpose of indicators. In this post I will discuss how I will use the concepts and ideas of Part 1 to an actual trade.

Take note that I am risking REAL MONEY in this. I am willing to lose $430 of my savings and I will not go home crying to mommy if I lose the said amount.

Here are the things that I want to have in my options trade:

I want to buy call options that have the longest expiration date as possible because the closer an option gets to its expiry date - assuming that it didn't hit the strike price - will be the lesser in value it becomes.
But I want to be a little greedy and I want to have as much profit as possible
I want the call option's strike price to be as close as today's price as possible without getting too expensive. The closer the strike price to today's price, the more expensive it will be and vice versa. This is called intrinsic value.

I want to fulfill the three requirements above with only using the limited cash I have which is $430. I will do this by splitting my small amount into two and buying two different SLV call options.

The first position: $27 Jan 12 Call Option
I want my first position to be the primary one, the one which is the more precious to me. Since I am convinced by the Fundamental and Technical Analysis that silver will go north of $25 during the course of the year 2011, I want the expiration date of my more precious Call Option to be after December 2011. The image below shows the different kind of Call Options and Put Options that has an expiration date of January 2012:

Take note of the red rectangle in the picture because this highlighted the type of Call Option I want to buy for my first position. Even though its strike price is $27 (which is $3 away from the current price of $24), Technical and Fundamental Analysis still predicts that silver and SLV will reach (or go past) the strike price on the year 2011. With its expiration date of January 2012, SLV will have a lot of time to maneuver north. But if it fail to do so, I have an entire year to close the losing position and recover some of the money.

Entering the First Position:
Currently I am using OptionsXpress as my broker because this offers stock options on US equities.

In the image above I have done a Buy To Open order on a SLV Call Option that has a strike price of $27 and an expiration date of January 2012. Buy To Open means buying an option in order to hold it for a specific amount of time and make it open to the changes and fluctuations of the market. The current price wherein I can buy the SLV Call Option is called the Ask Price which right now is $2.91; but if I want to buy at that price I need to use a Market price which is a bad thing for me because I have to pay the broker an extra commission in order to do that. What I can afford right now is to use a Limit price which is the price above the current option value. In the image above I entered a Limit Price of $2.95, which is still affordable. This means that if the SLV Call Option I wanted to buy hits $2.95 in value, the broker will automatically buy that option for me. Take note that all I can only afford is to buy 1 unit of this particular Call Option.

*** UPDATE ***
The $27 Jan 2012 Call Option that I entered was not fulfilled by the broker during the Monday New York Open thus I have no choice but to adjust the strike price one level higher. Due to budget constraints I chose to buy a single $28 Jan 2010 Call Option because according to the Weekly Charts of SLV (see Capital Gains Opportunity - The SLV Call Option (Part 1)) the price will have a huge probability of hitting the $30 mark next year.

In the US markets a unit of option, called an Option Contract basically equates to 100 shares of the stock. An option contract can only be bought in increments of 1 and there can be no fractional contracts. The $2.91 Ask Price of the call option I mentioned a while ago is actually denominated in a per share basis. Since I am going to buy one option contract that has 100 shares in it, I have to multiply the $2.91 Ask Price by 100 in order to determine how much I have to pay my broker in order to purchase that call option. But because I set my order to use the Limit Price of $2.95 per share in buying the call option, I have to multiply $2.95 per share by 100 shares under that call option which is $295. I have to pay my broker a commission fee of $14.95 for this trade thus my total expense for this first position is $309.95.

Entering the Second Position:
After the first position, I only have $120.05 left of my original $430 risk capital. Since I don't want to put this little bit of remaining money to waste, I am going to be more speculative with it (this is such a dangerous decision).

Take note that the process of entering the second position is the same with entering the first position.

Risks of this trade:

The $26 Jan 2011 SLV Call Option will expire worthless - It's OK for me that my second position to not exceed the $26 Strike Price by January 2011 because the loss that I will get from this will be recovered by my first position, which is $28 Jan 2012 SLV Call Option.

The $28 Jan 2012 SLV Call Option will expire worthless - If my first position did not exceed the $28 strike price by January 2012 I will not lose my hair because I am willing to sacrifice $430 of my savings and still be able to put food on the table. This is called calculated risk.

For more information about silver and Options Trading please get a copy of:

WARNING: Articles posted in this blog are from my actual life experiences and opinions. These do not guarantee a life of riches, alleviation of poverty, or making the world a better place. I am NOT LIABLE if you follow any of the articles posted in this blog and got poor.

INVEST AT YOUR OWN RISK. YOU ARE RESPONSIBLE FOR YOUR OWN DESTINY.

Capital Gains Opportunity - The SLV Call Option (Part 1)

As stated in Advanced Financial Literacy with Cashflow 202, I need to start first with Capital Gains in order to buy assets that will produce passive income for me.

An opportunity just presented itself.

The image above is a Daily Chart of iShares Silver Trust (SLV). The chart above depicts the particular activity of the stock in a per-day basis, meaning that one candlestick (a rectangle that has lines sticking on its ends) equates to one day. As depicted by the chart, SLV started trending upward since the last week of August, went down a little from October 11-23, then started going up again.

What is SLV anyway?
SLV is basically a stock that has physical silver in it (or claims to have). A good characteristic of SLV is that it tracks the movement of physical silver in the international markets.

So what are you going to do with it?
There are two ways (that I currently know of) on what I am going to do with this opportunity:

Buy the SLV stock itself then sell it later for a profit.
Buy call options on SLV.

Out of the given choices above, I will go with #2, buy call options on SLV.

Options? What's that?
A Stock Option is basically an insurance policy on that particular stock. It gives the option buyer the right to buy (or sell) that particular stock at a given price (called Strike Price) on or before a given date (date of expiration).

There are basically two types of options:

Call Option - a kind of option wherein you are given the right to buy that particular stock at a certain price (the strike price) no matter how much the stock price goes up (or down in value) on or before the expiration date. For example, if you buy an option for Great Teacher Onizuka Systems (GTOS) that has a strike price of $10 and an expiration date of December 21, 2012, you can use that option in order to buy the stock for only $10 a share even though you found out that after a few months the stock price rose to $200 a share! What a bargain! But if you decided to use the call option after December 21, 2012 (the date of expiration), you have no right to buy the stock at $10 a share no matter how many chickens you sacrificed to the statue of Bart Simpson.

Put Option - a kind of option wherein you are given the right to sell that particular stock at a certain price (the strike price) no matter how much the stock price goes up (or down in value) on or before the expiration. For example, you have some shares of Barney Stinson's Legen-Dairy Products (BSLDP) at a price of $50 a share and you bought put options on it with a strike price of $50 and an expiration date of January 1, 2012. If a few months from now BSLDP declared bankruptcy and its stock price went down to $0 a share, you can use the put option in order to sell the shares that you have to a price equivalent to your put option's strike price which is $50. So instead of losing your entire stock portfolio, you have recovered most of your money because the Put Option acts as an insurance policy for your stock. You are allowed to use your Put Option on or before its expiration date which in this case January 11, 2012. After the expiration date the put option you bought will expire worthless and you will have no insurance anymore.

Please take note of the word right. This means that you are not forced into using the options you bought and that you are allowed by the broker to buy a stock (Call Option) or sell a stock (Put Option) if you wish to do so (but as long as the option does not past its expiration date).

Multiple Ways to Play the Stock Option
You are given a lot of ways on how to play with options:

Buy low, sell high
Treat it as an insurance
Use it to reserve X amount of shares that you want to buy but don't have enough money yet
Treat it as your periodic (maybe monthly or quarterly) source of income

Since I can only risk $430 of my savings (which is a small amount of money in trading standards), all I can afford is to go with strategy #1 Buy low, sell high.

The Basic Concepts of Trading
Trading (whether it be stocks, options, forex, etc) has a higher chance to be more profitable when one employs these two popular forms of analysis:

Fundamental Analysis - pertains to "What to trade". I have given the explanation in The 131,000 Philippine Peso Lesson
Technical Analysis - pertains to "When to trade". The chart I have posted above and the other charts that follow gives the signal that now is the time to buy SLV call options.

Going Deep into Technical Analysis
I would like to go back to the SLV Daily Chart I posted above but this time I will apply indicators on that particular chart:

An indicator is basically a thing you put on the chart to help you understand past patterns and predict future ones. I believe (and experienced) that the financial markets - stocks, options, forex, etc. - have specific patterns and that history rhymes. There are lots of indicators on a trader's toolbox just like different kinds of brushes on an artist's repertoire but the indicators I used on this part are my favorite ones which are:

MACD
ADX

What I like about about the MACD and ADX is that, when used in tandem, are good in predicting strong trends. A chart naturally goes in any of these three directions at a particular time - trending upwards, trending downwards, and moving sideways. Right now it is very clear that the SLV is trending upwards.

Seeing the Forest and the Trees
The SLV daily chart allows me to see the individual trees while the Weekly chart below allows me to see the entire forest:

The chart above indicates that SLV (which tracks the price of physical silver) will go north of $25 for the next months (since a single candle of this chart indicates a week of trading the SLV). After reading the tutorial on the MACD indicator and the tutorial on the ADX indicator, you will also be convinced that silver will have a good 2011.

On the next post I will show how I will buy the call option for SLV and also explain the possible risks of my trade that will make me lose my $430 in the next few months.

Stay tuned!

For more information about silver and Options Trading please get a copy of:

Advanced Financial Literacy with Cashflow 202

Sorry for the late post. Just have to burn many sleepless nights preparing for the Microsoft Certification exams. But it is all over since I am now an MCPD-Web in ASP.NET 3.5 (Hooray!!!)

Anyway here's the footage of me playing Robert Kiyosaki's Cashflow 202 E-Game:

Part 1:

Part 2:

Applying what I learned from playing Cashflow 101 and Cashflow 202 here's my strategy in how to retire by 30:

1.) Raise a lot of money via Capital Gain deals. I am going to do it via Forex Trading and Options Trading.

2.) Use the Capital Gain profits to invest in dividend-paying energy and commodity stocks that provides
cashflow via dividends. This will be my CORE source of passive income as I build on my asset base. I am
going to use Put Options in order to protect my stocks from market crashes.

3.) I am going to multiply the profit from the stock dividends via Forex Trading and/or Options Trading.

4.) Repeat Steps 2 and 3 until the monthly passive income from my stock dividends EXCEEDS twice the cost of my monthly living expenses.

5.) Once I reach Step 4 I will use some of the stock dividends and Capital Gains in order to pay for the
downpayment of rental real estate properties and business franchises.

I just turned 26 two weeks ago and instead of celebrating my birthday I took a hard look at myself and asked "Where am I going?"

If I really want to retire by age 30 I need to get my act together and start somewhere.

Truth be told I have been dabbling the Forex markets since 2007 and the Options markets since last year and I am still not profitable in these two endeavors.

Frustration's starting to creep up on me.

But well, I don't care. I'm gonna do this. I don't want to be engulfed by analysis-paralysis. I'm gonna do this. I HAVE NOTHING TO LOSE!!!

On the next post I am going to document my "fresh start" on Forex trading with my proposed trading system.

Basics of Financial Literacy with Cashflow 101

Hey guys sorry for the late post. Real-life became freakingly hectic.

As promised here's the video of me playing Robert Kiyosaki's Cashflow 101 E-Game.

Even though I lost at this particular game session I have learned a lot playing this game repeatedly everyday for 1 whole year.

Yes. ONE WHOLE YEAR. I am not dumb or anything (I know that there are 29 letters in the English alphabet before Pluto was demoted into a dwarf planet). But there's something MAGICAL about this game that shifts your entire paradigm as you repeatedly play this game.

Part 1:

Part 2:

Part 3:

Here are the three main lessons I learned from the video game:
1.) Use part of your income on things that appreciate in value and can be sold quickly (Capital Gains assets)

2.) After selling those things that sell in value buy things that give you "salary" even though you are not physically working on them (Cashflow assets)

3.) Use the "salaries" you get from the Cashflow assets to buy bigger things that will give "salaries" (like buying the entire McDonald's franchise, buying a gold mining company, etc.)

Buy Cashflow 101 at Amazon.com
Buy Cashflow 101 at Rich Dad store

More details about my investing experiences will be explained on future posts so please stay tuned. :)

____________________________________________________________________________________

WARNING:

Articles posted in this blog are from my actual life experiences and opinions. These do not guarantee a life of riches, alleviation of poverty, or making the world a better place. I am NOT LIABLE if you follow any of the articles posted in this blog and got poor.

INVEST AT YOUR OWN RISK.

YOU, YOURSELF ARE RESPONSIBLE FOR YOUR OWN DESTINY.

Planning My Financial Freedom With A Video Game

So we already established that I am deeply in debt (which TOTALLY SUCKS by the way). But that doesn't stop me from aspiring to be financially free by the time I reach 30.

Last year I ordered a video game from www.richdad.com a PC video game called "Cashflow the E-Game". The game is basically like an electronic version of Monopoly wherein you go around a board and collect money, etc. But what makes it much cooler than the old-school Monopoly game is that in order to win the game your successful investments and businesses must be the ones that will cover your monthly expenses.

In short:

To win Cashflow the E-Game your Passive Income and/or Portfolio Income must EXCEED your Monthly Expenses

And once your passive income exceeds your expenses, you can now kiss your job goodbye (aka go on retirement) and pursue your innermost childhood dreams, like being a Power Ranger (lol!).

In Robert Kiyosaki's "Rich Dad, Poor Dad" universe, there are three types of income:

Earned Income (aka Active Income) - income from a your job
Portfolio Income - income from gains in the stock market or dividends from companies
Passive Income - income from Real Estate, book royalties, music royalties (I am a frustrated rocker by the way), royalties from TV shows if you are a TV star (like the cast of FRIENDS), patents from your inventions (like a real-life Gundam)

WARNING: Articles posted in this blog are from my actual life experiences and opinions. These do not guarantee a life of riches, alleviation of poverty, or making the world a better place. I am NOT LIABLE if you follow any of the articles posted in this blog and got poor.

INVEST AT YOUR OWN RISK. YOU ARE RESPONSIBLE FOR YOUR OWN DESTINY.

The 131,000 Philippine Peso Lesson

I would like to start my blogging experience with my biggest financial problem as of today - credit card debt.

I only have one credit card. ONE CREDIT CARD!!! It is an HSBC Visa Classic credit card.

After learning the truth about money and why gold and silver coins will make me rich in the next few years, I maxed out my 63,000 Pesos credit limit.

Well I used 20,000 Pesos out of that 63,000 Philippine Pesos to do a silver leveraged trade on OANDA which became a TOTAL LOSS!

Note to myself: Only put money you are willing to lose in Paper Markets.

I used the remaining 43,000 Pesos to buy myself American Eagle and Canadian Maple Leaf silver coins.

Now where did the 131,000 Pesos comes into play?

After reading Mike Maloney's Rich Dad's Guide to Investing in Gold and Silver (which is also available in Powerbooks right now) I learned that before a big inflation I should lock into getting a fixed-rate loan so that the increase in prices (and salaries) in the future will take care of the fixed monthly payments on the loan.

So I called HSBC's PayEasy and requested them to convert my outstanding credit card debt of 63,000 Pesos to fixed monthly payments of 28,000 Pesos. This fixed monthly payments scheme will last for four years for a total of around 131,000 Pesos!!!

As of this year 131,000 Pesos is a huge amount of money but I am convinced that four years from now 131,000 Pesos will not be that big anymore.

Why?

Remember in 1995 that a movie ticket costs only around 20 Pesos? How much is it today? More than a hundred Pesos!

While I am locked in a fixed-rate debt for the next four years I now felt the feeling of uneasiness of lots of people who got home mortgages for their houses. Those mortgages had them locked for 20 years while I am just locked for four years.

Also applying the teachings of Robert Kiyosaki (Rich Dad, Poor Dad), I learned that:

Don't pay for a house or a car unless you will use it for a for-rent type of business (passive cashflow).
Don't buy a house or a car unless you have an income (or a profit) from your investment that can give you additional money so that you can buy for these big-ticket items only with cash.
Unless you have the excessive cash to buy your own house and that you don't need to take a mortgage, rent a place for you to live in.

So this is my lesson that I think is worth 131,000 Pesos (at least). MBA guys and those who study four years in Harvard Business School will never get this unless they experienced it.

Life is indeed the greatest teacher of all.

About the "big inflation" thing, I think this video will help you understand: