I bought 1100 shares of XXX at $35 and sold the November at-the-money calls for $2.30 so I raked in $2530 today in premiums. Hopefully, I’ll get called as there is no upside because the calls are at-the-money. This represents a 6.6% return in under 30 days! As before, because these trades are made with arbitrage funds, trading symbols are XXX’d out.
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What is XXX - is that just a generic replacement because you don’t want to reveal the fund?
Thanks,
/d/
Yes, it’s a generic replacement. It’s not really that hard to figure it out. Most of the time the ETF is listed on the ETF-Cashinator.
I don’t list the trade because this is an arbitrage account which means I’ve BORROWED funds to invest (i.e. this is pure speculation).
I don’t want to give people the wrong idea that they should go out, borrow money and invest in the same things I do to try to achieve these types of returns.
I’ll unveil the funds at the end of the quarter. You can see the other trades in the Power Account and Mini-Account funds.
Hey Rich,
Curious on how you were able to get the funds for investment..I know I think I read on your other blog about credit card arbitrage. I think this is what you did here but not 100% sure. I was thinking of doing something similar although I’m young and it’s probably not a good idea because it will hurt my credit score. I have at the moment 30k of outstanding available credit between my 2 credit cards. I was thinking of doing something on the order of 5,000 as to not make it a huge portion of my outstanding credit. Considering the fact that many kids my age I know have more than 5k in charges on their credit card. I was looking to do this just to be able to have more $ to invest relatively risk free for the most part and in turn pay greater than the minimum $ payment each month. What’s your take on this since I know this is something you know about. *Balance Transfer* I’m referring to.
I did indeed “borrow” 40k from credit cards at 0% and that’s what this arbitrage account currently represents. I will say though that in a worst case scenario where the stock market completely collapses and my 40k of “borrowed” money turns into ZERO dollars, I still have the cash lying around to pay back the borrowed 40k. In a total collapse, my credit score wouldn’t take a hit because I would simply pay back the money I borrowed.
The obvious question arises, “why don’t you just use the 40k in the bank to do this” and the answer is simple: leverage.
I am earning 5% on my cash savings and I’ve currently earned $3800 on 40k borrowed which translates to 9.5% return in 60 days. I’m earning money on two layers of funds - my own and my credit card bank’s money.
My obligation is also to pay back the arbitrage money slowly over a period of time so the risk is acceptable to me.
Having said all this, your FICO will take a hit as I wrote about yesterday on my blog. If you’re not in the market for any loan products like home loan, auto loan, or in the market for insurance or other products based on FICO and you understand the risks then it *might* work out for you but YOU need to decide the level of risk that is acceptable to you.
The markets have been particularly volatile these past few months - the Dow has swung from 14k down to 12k and now hovers around 13.5k. It’s not for the faint of heart and anything might send the markets falling off the cliff (collapse of dollar, terrorist attack, etc). There are risks to everything and there is no free lunch out there.
What do you do if the underlying stock collapses quickly while you are still long??
I don’t trade individual stocks for that reason: immediate plunge because of some anomaly(fraud, bankruptcy, law suit, etc).
If you’re talking about an ETF plunging suddenly, then the recourse is to ride it out. If you still need to generate income then sell 30, 60, 90 or 120 days calls into the future.
Right now, I’m holding EEB and EWZ - EEB is still up but EWZ has dropped. I’m long on EWZ so after options expiry tomorrow, I’ll look at selling December or January Calls to generate more income.
The $85 December Calls are trading at $3.70. That’ll be another $1500 in profit if it holds through next Monday.