Trading Renting Out Shares

Hi I have just finished watching a DVD by Jamie McIntyre, 21st Century.
He talks about buying Blue Chips Shares, and then renting them out.
Does anybody do this.
If this is a good idea, do you know the name of a Broker who does this??

 

Hi Chris,

There is a stock lender down in Melbourne from memory who is doing this on a more retail level. Not sure what the rates are though I think you'd be better of getting and holding more exotic stocks, maybe they have a list of more sought after stock?. When I was a scrip clerk it was always easy borrowing blue chips (every fund manager owns them).

Though it would be a pretty hard way of making money, keeping in mind that a fail fee from the ASX is 0.1% of the value failed, the min and max fees are $50 to $2,000 per day per stock. Ie, if you fail $50,000 it's $50, if you fail $20,000 it's still $50, if you fail $2,000,000 it's $2,000, if you fail $5,000,000 it's still $2,000 and anywhere in between it's 0.1%.

Good luck,

Dan

The above email is not advice to buy, sell or hold any stock. Speak to your Stockbroker, FPA registered Financial Planner, licensed Accountant or Tax Adviser before buying, selling or holding any stock.

 

This has been discussed alot. Do a search on this forum and also the Somersoft Property Investment Forums one.

Its technically called:

Buy-Write
Protected-Buy-Write
Magic Moo-cow (Peter Spanns name for it)


Google will help too.

All brokers that allow trading options will be able to do it.

 

I saw this DVD last night.

I thought it was crap and I fell asleep. Right after the he said, "I don't have to be here". I'm thinking to myself, well if you don't need to be here I don't need to be listening to your crap so I'll go to sleep now

Did I miss anything specific and useful?
Or was the rest of the video just fluff to get us to go to a seminar to get specific and useful strategies?

Cheers
The Stig

 

That's awesome! lol

 

Well shiver me timbers. I am a beginner in all of this ... I watched those DVDs last month. After some researching, I found out it was called a covered call strategy.

ASX - Systematic approach to selling premium

.... and I found out more options trading strategies, but all the other strategies are too risky for me, except probably for the collared strategy:

ASX - Protected Covered Write

... but the premium you receive for the written call is reduced by the premium you pay for the bought put.

Anyway, these 2 strategies does not seem to be very risky at all, and am wondering why not many use it.

How can you loose in the above ? With the plain covered call, the stock could go down in value so that you loose in paper your initial purchase because you could not sell the stock until the expiry of the written call. Then why not write another covered call the next month again ( of course at a lower strike price than the previous month since the share price has gone down ) and again and again until you "recover" your initial cost ? What am I missing ?

But if you use the collar, you could not loose at all, although the premium is a lot smaller.

The other strategies are too risky for my profile.

 

jms, if you want to learn about collars, the best book I can recommend is "Collars" at the Random Walk Trading Thanks You website.

They also have a tag along service where by you can watch them trade collars every day. It's a great education, BUT it is on the US stock markets.

I trade/invest in the US and I have a 3 month subscription to the collars tag along service. It is very very good.

Most complete education on the strategy you will find in the world I think.

Cheers
The Stig

PS, the covered call has unlimited risk and limited return. If the stock tanks too far you have yourself a buy and hold strategy LOL

You can still screw up collars and loss money. There is no free money in the markets.

 

jms,

You may consider two books:

- Understanding Options Trading in Australia by Chris Tate.
- The secret of Writing Options - An Australian Guide to Trading Options for profit by Louise Bedford.


EDIT:
Below links may help you...

Protective puts - options and futures strategy

Options Strategies - The Collar

 

Thanks for those info guys ... Do you agree that these 2 strategies have one of the lowest risks in options trading ? Still wondering why not many do it ? I presume "The Stig" and "Tropo" are doing it ? If I can ask, what's your return so far ?

To be honest, I would not have known about these without Jamie's DVD. Although they are available on books / net / on ASX's website. I would not have been made aware of these otherwise.

 

Low risk = Low return

The amount the stock goes down will be(mostly) more then the amount you get in premium... Therefore you are effectively throwing good money after bad. And when you finally do get exercised, well below your initial purchase price, you just crystallize the loss.

Have you considered brokerage?? If you are using only a small amount of cash (ie 1-5 contracts) then brokerage will 'eat' into a lot of your profit. You would need to work out some numbers. You will also have to 'time' your trading quite well to 'trade' inside the written call and the purchased PUT, or you will be up for more brokerage when you exercise the option(ie stock trade brokerage)

I have not heard/read many people being successful over the long term trading the 'collar' as their main strategy. Although Stig seems to have found a website discussing it.

Happy Trading.

P.S. There is risk in EVERY options trading strategy... If you can't find where the risk is then you are not looking hard enough or don't fully understand the trade

 

Thanks ... Didn't think of it that way. So maybe don't write a covered call when the share price is lower than the original purchase price ??? Question then is, what do you with the stock for that month ? Hmm .... ( Just thinking it through ).

I did not say there was NO risk, I said low risk .. .though the phrase "could not loose" was probably leading to that.

But isn't it ( covered call, collar ) a good thing for a beginner instead of trying out other option strategies like buy-write puts ?

 

But isn't it ( covered call, collar ) a good thing for a beginner instead of trying out other option strategies like buy-write puts ?

jms,

Options are NOT for a beginners.
Try stock market first (shares).
Do not try to fly if you do not know how to walk properly.
But that is only MHO.

 

Too true

 

The Covered-Call Strategy is usually implemented in a flat or uptrending stock. This way the stock price will generally rise between months (or at least over a 2-3mth period). The last couple of years are a great example. Others on this forum have commented that they have been very successful with the CC strategy

You just have to use the appropriate strategy for the current market conditions. .. Some strategies just won't work all the time.

Happy trading

Take Stigs advice: Read/research forums/websites that trade that strategy and then 'papertrade' it in the live market. You will soon work out how it all works, what the pitfalls are and what the rewards are. Just take things slowly

 

I have been using the covered call strategy for the past 2 and a bit years and as a guess it has returned approx 20 plus percent returns pa.

I have used this strategy on lgl, bhp, zfx, amp shares but mainly lgl. Happy to give you more info if you pm me.

OSS

 

How has ZFX worked with the Covered Call strategy since July07? Its in a nice downtrend...

 

I have not continuously written calls on zfx - a couple of select months. Was not exercised on these. I generally float my money across stocks depending on the current share price and price history.

OSS

 

Unfortunately I've got a huuuuuge chunk of my money in ZFX. First started when they were at $7.72, got exercised at $8 and followed them up. Latest purchases were actually at around $17/$18. Been watching the freefall with dismay, but as my strategy is income focussed I'm writing lower priced calls to still get the income. I'll only get exercised if ZFX has a massive turnaround and jumps about 4 strikes in a month, but if that does happen I'll take the cash and invest again.

BHP, BNB, OXR are other favourites.

 

noob question.. what tax % do you pay on income from premiums etc. Also are brokerage/fees tax deductible?

 

Hi Eddie,

It's the standard tax rate as income for the relevant tax vehicle. Ie, if it's done in your own name, your MTR, if it's done in your super 15%, if it's done in your allocated pension 0%.

You would probably find that the costs (eg, brokerage) would be tax deductible as this is an expense to generate income.

Cheers,

Dan

PS Speak to your accountant or tax adviser before doing anything!