It’s no secret that I’m not a fan of Las Vegas…
From casinos reeking of cigarette smoke to zombies spending hours at slot machines, it’s not a place I’d go out of my way to visit.
But last week, I was in Vegas at the annual Stansberry Conference. It was perhaps the best year yet. I was struck by how many speakers referenced the need for balance in your life… that you need to prioritize your health and happiness no matter what your job is or what your financial goals are. It’s something I’ve done long before we even began Health & Wealth Bulletin.
One of the speakers I was most excited to see was Paul DePodesta. He’s the chief strategy officer of the Cleveland Browns. He has made a career of evaluating, measuring, and assigning value to talent, as documented in Michael Lewis’ book, Moneyball: The Art of Winning an Unfair Game. DePodesta spoke on the importance of having a good process to create good outcomes.
I also watched our newest analyst, Matt McCall. Matt and his team have put together an overview of areas you should be investing in (including lots of areas I’ve also recommended, like health care). Matt has a good macro view of investing, and you can tell just how passionate he is about it.
It was fun for me to see the older crowd of Stansberry Research analysts, like me, passing the baton to younger guys like Matt McCall.
Recently, Matt shared why he thinks there’s a massive wrecking ball heading for your retirement. But, as he explained in a special presentation, the next decade will be an incredible time to grow your wealth if you know where to invest.
The video will be taken offline soon, so make sure you watch it here.
Now, let’s get into this week’s Q&A… As always, please keep sending your questions and comments to [email protected].
Q: You explained stops with dividends, but what about selling options? Do I need to track them? If so, how? – B.B.
A: Whatever investing strategy you pursue, I always urge you to choose an exit strategy before you open a trade. In my advisories, I use sell stops – the maximum loss I’m willing to accept before exiting a position. That includes my options-trading services.
In my Retirement Trader advisory, I recommend that people set stop losses between 20% and 25%. These losses are based on the total cost of opening and closing the trade, and Retirement Trader subscribers can either sell puts or covered calls.
Let’s take a look at an example… In this case, we’ll use a 25% stop loss for a covered call. (For readers who aren’t familiar with options trading, a call is a contract to sell stock at a certain price. When you set up a covered call, you’re selling someone the right to buy 100 shares of a stock you own.)
Say you sold December $25 covered calls on stock XYZ. You bought shares of XYZ for $25, then collected a premium of $1 for the call option you sold. That means your total outlay – basically what you spend to open the trade – is $24… the $25 stock price minus the $1 you received in the call premium.
To figure out the 25% stop limit, take the total outlay and multiply it by 75%.
In this case, the combined value was $24 (cost of the shares minus the premium income)… $24 multiplied by 75% is $18.
Now, because you’ll have to buy the call back to close out the trade, you have to factor that into your calculation.
Let’s say that the option is trading for $0.25. You’d need to spend $0.25 to buy back the option. So following a 25% stop loss, you’d want to close the trade if shares hit $18.25.
Now let’s look at how we calculate stop losses for puts…
Say you sell December $25 puts on stock XYZ and you collect a premium of $1. Selling a put option for $1 with a $25 strike means your capital at risk is $2,400 (recall each option contract represents 100 shares). Capital at risk is the amount of money you’d owe if you had to buy shares of XYZ.
Here’s where things change from covered calls… This time, we want to look at the maximum amount we’d be willing to lose per option. Using the same 25% stop loss, that would be $6 ($2,400 x 25% divided by 100).
But remember, when you first sold the put, you received $1 per option. That’s your money to keep, and it raises your stop to $7.
To ensure you lose no more than $6 per option, you would buy back the puts if the option price increases to $7.
A: We’ve written about statins a lot over the years. Statins are easily one of our most popular (and controversial) topics. Here are a few articles where I take a deep dive into statins and how to take control of your cholesterol without them:
- The Heavy Cost of Lipitor
- One Number That Makes My Blood Boil
- The Real Danger Our Hearts Face
- Two Lifestyle Tips to Lower Your Cholesterol
What We’re Reading…
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
November 5, 2021