InvestEd 2014: Irvine CA

November 2013 Webinar: Options: Cash Secured Puts

TINSTAAFL: Using Covered Calls Part 3

Online Learning Part 1




InvestEd 2014

Irvine CA, June 6-8, 2014

Irvine Marriott

Update! Curriculum Online  Early Registration Deadline 12.31.13

he InvestEd 2014 conference offers two and one-half days of investor education with a dynamic curriculum, which includes 26 new and updated sessions, hands-on sessions in the Computer Lab, and lively discussions in the Friday and Saturday night Cyber Cafe.


Increase your knowledge of dividend investing, retirement planning, options, and economics with sessions by Saul Seinberg, Mary Ann Davis, Bob Adams, and Bart Womack. Learn more about screening with Don Cassidy, Doug Gerlach, and John Tonsager. Get into the nitty-gritty of company financials with John Diercks. Learn from instructors who take a closer look at your Stock Study Form. The Stock Up – Veterans Share Their Secrets panel returns for the fourth year with new choices.


Daniel Rivera is the expert on everything Google: Glass, Chrome, and Drive. His hands-on sessions in the computer lab are not to be missed; just ask those who attended last year. Joe Craig talks about Windows 8, social media, and where technology is heading. Saul Seinberg reviews 25 apps in 50 minutes. Need email help? It's available.


Included in the InvestEd weekend at no additional cost are the Friday afternoon computer and technology Bonus Sessions and the Newbie Program. The celebrated Newbie Program on Saturday and Sunday is designed for those who are new to investing or want a refresher course.


The entire weekend schedule and the session descriptions are on the InvestEd 2014 website.


The reduced $369 holiday registration rate saves you $40 and is available only through December 31, 2013. Students with a student identification card pay $359. Refer others who did not attend InvestEd 2013 and receive a $25 referral rebate for each one who registers. You both must attend InvestEd 2014.


Registration includes access to all sessions (special registration is required for the self-contained Newbie Program), five full meals, a staffed Computer Lab, the Friday and Saturday night Cyber Cafe, discounted internet access in your Marriott guest room, and reduced self-parking rates.


The $99 (plus tax) room rate in the InvestEd room block at the Irvine Marriott provides cost-effective and comfortable lodging. Make your hotel reservations today.


Irvine is located in Orange County and is a vacation destination where you can combine investing education and sightseeing. Visit the InvestEd tourism page for ideas about where to go, what to see, and locations to enjoy excellent dining.


Education is a gift that keeps on giving. Share the wealth, build better futures, and enjoy a June weekend in Irvine at InvestEd 2014.




InvestEd Inc. Free Webinar

Options: Cash Secured Puts

Sunday, November 24, 2013
8:00 PM-9:00 PM ET / 5:00 PM-6:00 PM PT
Instructor: Saul Seinberg
Webinar Registration

Cash secured puts are used to buy stock at a discount to market value by investors who are bullish for the long term on the stock's prospects, but have a short term bearish outlook. While selling cash secured puts usually is thought of as a beginning option strategy, we have some "rules of the road" that require an investor's attention and application in order to minimize risks. This webinar will explore those rules by considering how cash secured puts work, their benefits, and their potential risks. The webinar presentation also will address how to handle changes in the put seller's outlook and the repair of a cash secured put position that isn't working out.


Register now to attend the InvestEd Inc. free online investor education webinar. Space is limited.

Saul is an InvestEd Inc. advisory director and a conference instructor. A former vice president for education of InvestEd, he teaches at local through national investor education events. With degrees in electrical engineering and law, Saul spent most of his career as a corporate attorney. In addition, he served as an adjunct professor at Albany Law School in New York.





TINSTAAFL: Using Covered Calls Part 3

Saul Seinberg


In Part 3 of this article, I will be discussing how the tactics of Part 1 and Part 2

fit into a plan for selling calls on existing portfolio holdings, along with the notion of replacement planning, should a holding be assigned, in order to maintain portfolio targets.


Overwriting or selling covered calls on stocks you hold in your portfolio also has some challenges an investor needs to consider and address as necessary. For sure, the issue of lost profits as previously discussed is a consideration. Other considerations that need to be accounted for based on the nature of the investor's portfolio also come into play. Too often, the impact of selling an option on a stock in an existing portfolio is ignored or not fully appreciated by investors.


Investors who basically are buy-write covered call traders can and do treat their holdings as mere inventory for which no long term attachment is contemplated. The buy-write traders have chosen to be largely indifferent to lost profits or in applying the usual portfolio considerations, since their actual goal is the pursuit of premiums. However, some aspects of portfolio maintenance should be considered by investors who are contemplating the sale of covered calls on holdings in a portfolio that has not been developed with the primary notion of collecting premiums from the sale of covered calls.


In the case of a growth investor, holdings in a portfolio are selected on the basis that their share prices will increase appreciably in a moderately long period of time, say five or more years. A typical overall portfolio increase is 15 percent on an annualized basis over a five-year span. That is a fairly aggressive goal when one considers that the average annualized historical increase for the S&P 500 Index is just a little shy of 10 percent. This may not seem to be a large difference, but in reality, the growth investor is targeting a 50 percent or better increase in performance over what has been achieved over time by the S&P 500 Index. On balance, this purpose usually does not mesh well with a desire to have the same growth portfolio produce more income. However, overwriting on stocks held in a growth portfolio will happen and is not an unusual tactic, so we have a couple of considerations to account for other than the usual option metrics.


Assume the investor has a growth portfolio that holds a number of stocks performing or growing as expected, along with a couple of laggards or under performing stocks. The portfolio owner who is familiar with options likely would decide to sell covered calls on these laggards. Covered calls definitely should not be sold on the performing stocks in this portfolio, as this probably would result in a premature sale through assignment.


While the situation with respect to the laggards seems simple, the investor may sell the covered calls to gain premium that will compensate for their under performance. Usually, however, this is not the only consideration or the best outcome. Often covered calls are sold on the laggards without consideration of their nature as growth stocks or of the underlying factors that likely are contributing to the under performance. Thus, any rush to sell covered calls on the laggards can be shortsighted.


First, the laggards should be re-evaluated from a fundamental standpoint to see if they still qualify as growth stocks. If so, then the market has failed to assess their true worth, and the possibility of achieving the 15 percent target growth remains realistic and possibly imminent. In such a case, covered calls should not be sold, since the likelihood of lost profits will be higher, given the still viable growth potential of a laggard that continues to have a bright fundamentally-based future, although currently that potential is unrecognized by the market.


Second, in the case of a laggard that no longer qualifies as a fundamentally sound growth stock, an investor could choose to sell the stock outright, or choose to sell a deep in the money covered call on any such flawed laggard. A deep in the money call significantly ensures that the laggard will be assigned and that the portfolio owner not only can obtain a reasonable sale price, but also will secure a very favorable premium to enhance moving the laggard out of the growth portfolio.


Two other considerations need to be given to writing covered calls on stocks in an existing portfolio. These considerations apply to portfolio diversification and income. If assignment occurs in a covered call situation, these factors must be addressed for purposes of future expectations..


Whenever an underlying stock is assigned and therefore removed from a portfolio, its absence will skew any diversification scheme unless a suitable replacement is found. Usually, this is not the case, and with respect to maintaining the portfolio's diversification, assignment in an overwriting situation is not given much if any thought. Therefore, identifying a suitable replacement candidate for any underlying stock that is assigned out of the portfolio would be prudent.


A like situation exists with respect to the income produced by a portfolio. Even though offset by the premium received, assignment of a dividend paying stock removes the chance of future dividend payments from a portfolio. When premiums are lower than usual because of reduced volatility, or when more conservative strike prices are sought, dividend replacement becomes more important. So here, too, as in the case of diversification, the investor would be wise to have a suitable replacement candidate available for any assigned stock so that lost income is replaced.


One final caution about the VIX is noteworthy. As most option traders are aware, the VIX is a measure of volatility for S&P 500 options. Its meaning is usually stretched to cover the market as a whole. More popularly known as the "fear index," the VIX is a forward looking gauge of expected market volatility for the S&P 500 over the next 30 days. Sufficient for the purposes of call writers is knowing that a high VIX value, generally above 30, reflects an expectation of higher market activity, with higher premiums due to the higher volatility, and a low VIX value, generally below 20, while considered bullish, reflects an expectation of lower premiums because of lower volatility. According to Wikipedia, "In practical terms, when investors anticipate large upside volatility, they are unwilling to sell upside call stock options unless they receive a large premium."


In other words, you should be unwilling to sell call options when the VIX rises substantially, since you are likely to leave money on the table when the market makes a dramatic upward move or lose money on the underlying stock if the market heads south. And, just as important, you need to be self-disciplined and decline to sell calls when a low VIX drops premiums to unacceptable levels.


Selling calls into the teeth of a low VIX usually will bias investors into bad trades, as they sell too close to a nearby strike price and/or extend their expiration date out by several months longer than usual in an effort to capture larger premiums, making it more likely, in either case, that such calls will be exercised.


Thus, with respect to selling covered calls, investors must appreciate the tradeoffs involved that may leave money on the table or, in overwriting situations, warp the diversification or income profiles of an existing portfolio. The same is true when premiums get too thin. Selling calls is not risk free or without limitations. Call premiums do come with limitations, often underappreciated, that can render the covered call process less than what it is advertised to be.


TINSTAAFL does indeed apply in the case of covered calls, and your best overall protection is a complete understanding of all the tradeoffs involved, including the primary strategy that covered calls are intended for use with respect to stocks that are perceived to have only neutral to mildly bullish prospects over the life of the call option to be sold. That is an important consideration to be kept at the forefront of all covered call trading decisions.

I wish you good luck and good trading.


Attend the next InvestEd conference, June 6-8, 2014, in Irvine CA, to learn more about options from Saul and from Don Cassidy and Mary Ann Davis. Specific session information is available on the InvestEd website.


Saul is an InvestEd Inc. advisory director and a conference instructor. A former vice president for education of InvestEd, he teaches at local through national investor education events. With degrees in electrical engineering and law, Saul spent most of his career as a corporate attorney. In addition, he served as an adjunct professor at Albany Law School in New York.




Online Learning Part 1

John Tonsager


These days we can learn just about anything online, and we have plenty of reputable websites to educate ourselves. This two-part article highlights 10 websites that offer a variety of subject manner, all for free.


The coolest thing about Internet learning is you can take college courses that in the past were available only to people who spent immense sums of money to attend elite colleges. Founded by two computer science professors from Stanford University, Coursera partners with over 80 top universities and world organizations to offer more than 450 courses ranging from Introduction to Guitar from Berklee College of Music to Constitutional Law from Yale.


Courses at Coursera typically include videos and also coursework (such as online quizzes) that must be completed in a certain amount of time, as these courses are monitored by a professor. Stop by regularly to see what's new or search for topics of interest to you and put them on a watch list so you'll be notified when a new class begins. Note that your search may include courses in several different languages.


Home to more than 4,500 videos on subjects ranging from SAT prep to cosmology, art history to calculus, Khan Academy is a great place to learn free of cost. Begun as a way to help a niece with math homework, Kahn Academy was founded by Salman Khan, an educator with three degrees from MIT and an MBA from Harvard. Detailed courses are identified in small sections of text or videos for ease of learning. The micro lectures are in the form of video tutorials that are stored on YouTube. Of interest to investors, subject categories include finance, macroeconomics, and microeconomics. All courses are self-paced so you can spend as much or as little time with the subject as you like. You may leave comments or ask questions if you want more information or if something isn't clear in the lessons.


An article entitled "Khan" by Judith Russ Leon appeared in our June 2011 InvestEd Newsletter. Check the InvestEd website's newsletter archives to read more about Khan.


The OpenCourseWare Consortium is a worldwide effort to make college and university free course materials accessible to everyone on the Internet. Search for a specific topic that interests you, or search by language (20 are available). More than 5,000 classes are offered in English alone, covering everything from statistical thermodynamics to Epidemics in South African History. You also are able to look for courses from a particular university or other educational organization.


A global learning resource with over 500 courses in English, French, and German, ALISON (Advance Learning Interactive Systems Online) covers everything from financial and economic literacy to health and safety courses. Other categories of courses include everything from study skills to American copyright law, from currency exchange to nonprofit fundraising, and from general accounting to negotiating when buying a house. Completion of a course grants you "certification," which is a British designation, but still kind of fun.


If you always wanted to attend a big-name school like the Massachusetts Institute of Technology (MIT), now you can do the next best thing by taking any of its 2,150 courses for free from your home and on your own time. The MIT Open Courseware site posts course materials from a wide variety of classes you can search by topic or by department. Topics include business (one of the sub-topics is finance), energy, engineering, fine arts, health and medicine, humanities, math, science, social science, society, and teaching and education. Choosing a course will give you additional information, including the course description, whether the course is undergraduate or graduate level, the instructor, and when the course was developed and first taught. Students have access to the syllabus, course calendar, readings, assignments, and study materials, and may download the course materials and work through the course at their own pace.


In Part 2 of this article, five additional online learning sites will be highlighted.


John is a director and a past president of InvestEd Inc. A conference instructor, John teaches basic stock analysis classes at national investor education events. He is a member of an online investment club. John loves the outdoors and enjoys hiking, camping, and canoeing, as well as archeology surveys in the Arizona Strip.




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