Call me if you want to discuss this. (705-441-4566)

The market is tanking, but we know it will recover and continue to rise.

Yesterday, Rosi and I made $358.48 per contract selling coverage calls on SPY. That is the most we ever made. Most of our income comes from selling derivatives.

Here is how to do it.

Congratulations to us for investing in SPY, which is in American dollars!

The chart above shows that one American dollar buys $1.425 Canadian dollars.

In most countries, sovereign wealth funds are in American dollars.

We frequently state that we should only sell covered calls and cash-secured puts using SPY (an exchange-traded fund tracking the S&P 500, which is the American economy as a whole) and never buy them.

Who does buy them?

By buying call options on SPY, investors can control shares for a fraction of the cost of buying SPY. If SPY rises, investors benefit as if they owned SPY. If SPY drops, investors lose 100% of their money, but they will get to keep the premium income regardless.

If they owned SPY instead of options, they would only lose the same percentage of money as the drop in SPY, knowing that it would recover and continue to rise.

Buying put options on SPY investors hope that it declines. That is similar to selling SPY short. If SPY rises, investors lose 100% of their money.

Investors who sell SPY short hope to profit from its decline. They borrow SPY shares and hope to repurchase them for less money. The big risk of short selling is that if investors guess wrong and SPY rises, they will suffer infinite losses.

Don’t go there. Only sell covered calls and cash-secured puts and keep the premium income.

My income and Rosi’s primarily comes from doing that.

We want to sell derivatives (only sell and never buy). We should be either in cash or in SPY. Selling derivatives has safely produced a 16% annual return for over 100 years.

Americans can do that in tax-advantaged accounts. Canadian investors need to have a margin account.

Here is what to do.

The market is significantly overpriced now and could become even more overpriced. However, that is sure to reverse someday.

Apple has enough cash to buy Disney and Coca-Cola outright. Apple was recently named the best-managed company. Warren Buffett also has a lot of cash. They are waiting for that inevitable correction.

Goldman Sachs and Bank of America are saying that we will soon look at a 0% to 1% return on our money for a decade or longer. At that point, we will need to live using our cash.

What can we do?

Call me if you want to discuss this. (705–441–4566)

The market dropped on December 12. That means those who wrote covered calls on SPY (as we should be doing) will not be assigned.

The fact that the market dropped is irrelevant. We know it will recover and continue to rise for a while (but not forever).

Writing covered calls on SPY will earn investors about US$100 per contract in less than five minutes when the market opens at 9:30 a.m.

In over 50 years of investing, I have found that selling derivatives has been the best investment method.

Call me if you want to discuss this. (705–441–4566)

Over the last month, the market rose 5.97%. Rosi and I earned 7.22% during that time.

How can you do that?

Call me if you want to discuss this. (705–441–4566)

On December 6, as soon as the NYSE opened at 9:30 AM, we wrote covered calls on the SPY shares we have in three portfolios, expiry date at the end of the same day. The strike price was $US 607. That earned $US 127.00 for every hundred shares for SPY. We own enough shares of SPY to be able to live comfortably on that income.

Rosi and I do this every day, Monday through Friday, that is not a market holiday. In over 50 years of investing, I have found this to yield the best results.

The only way to do better is to do something illegal. Crime pays unless you get caught.

How risky is it?

One of our members recently asked: “What do you think of shares S&P /TSX 60 index Fund (TSX : XIU)? Yes it is a Canadian ETF of 60 of the biggest companies .

My response follows.

I have not considered S&P /TSX 60 index Fund (TSX : XIU).

SPY, which represents the S&P 500 and its predecessors, representing the American economy, have been the best-performing exchange-traded funds in about 200 years.

We encourage our members to stay with that.

Compliments for the season to all of you and best wishes for the season and every day!

Milan

TD webBroker has a promotion now. They will give you a gift of one percent of any money you transfer to TD webBroker from any other bank.

For example, if you transfer $100,000 you will get a gift of $1000, risk-free.

If you don’t have a TD web broker account, they will be happy to open one for you. Make sure that it is a margin account.

Canadians are not allowed to sell cash-covered puts in their tax- advantaged accounts (RIF, TFSA, RRSP and the like) as Americans can. However, they can do so in a margin account and that is the only reason to have one.