The Stock Option Income Generator: How To Make Steady Profits by Renting Your Stocks

Preface xiii

Acknowledgments xvii

Chapter 1 Fear and Ignorance 1

The Stock Market Crash of 1929 2

Investment Knowledge + Stock Market = Profits 6

Understanding Investor Behavior 6

The Crash of 2008 7

What to Do First 8

My Investment History 10

Summary 13

Chapter 2 Invest with Confidence 15

What is Investing? 18

Asset Allocation 18

Risk versus Reward: Finding Your Balance 19

The Three Strategic Factors 22

Stocks: The Long-Term Core 23

Defining Investing and Fear 29

Market Madness: Black Monday, October 19, 1987 31

Market Anxiety is Caused by Many Factors 32

Year 2008: The Collapse of the Stock Market 32

Investing and Gambling 34

Investment Policy Statement 35

Discipline Can Be Really Good for You 35

Chapter 3 An Overview of How to Invest 37

Inflation 38

Investing in Stocks 39

Contrarian Investing 48

Growth Stock Investing 48

Common-Sense Stock Selection 49

Dividend Income Stock Investing 50

Keep in Mind 50

Chapter 4 Stock Picking, Research, and Annual Reports 53

Questions for Investment Decisions 54

Sources of Investment Information 55

Trade Press 57

Investment Clubs 58

Reading the Annual Report 59

The Quarterly Report 66

Changing the Rules 66

Annual Meetings 67

Stock Selection Summary 68

Chapter 5 How to Read the Financial News 71

Guide to the Economy and the Stock Market 74

Your Wallet Can Be a Leading Economic Indicator 76

Chapter 6 The Art of Investing, Risk, and Reward 79

Stocks or Bonds? 80

Market Timing 81

Avoid Common Investment Risks 82

Risk Breeds Fear 83

General Investment Strategies 85

The Tools of Contrarian Investing 89

Classic Stock Market Statements 89

Madness of Crowds 90

Take Advantage of the Pros 92

Insider Information 95

Insider Trading is Not Always Illegal 96

Buy, Sell, or Hold? 97

Performance Records 100

Investing Considerations 100

Transaction Costs Compared 101

To Make Money in the Stock Market, Don’t Lose Any 102

Chapter 7 Dividend Reinvestment Plans 105

Dividend Reinvesting Plans and Dollar Cost Averaging 107

The Compounding Effect 108

DRPs: Advantages for the Investor 108

DRPs: Advantages for the Companies 109

Using DRPs to Select Stocks 109

Safety with a Small Investment 110

Dividend Reinvestment Plans and the Compounding Effect 110

The Dividend Debate 110

Chapter 8 Picking and Dealing with a Stockbroker 113

We Invest to Make Money 114

The Buck Starts Here 115

Shocking Facts: Is Research from Wall Street Useless, or Worse? 116

The Stocks in the Dow Jones Averages 118

Today’s Bargains Can Be Tomorrow’s Winners, and Today’s Winners Can Be Tomorrow’s Losers 120

Why Use a Discount Broker? 121

Understanding Procedures 122

Chapter 9 Advanced Investing and Goal Setting 131

Financial Failure 132

Money × Return × Time = Your Goal 134

Your Money 135

Your Return 136

Your Time 136

Investment Risks 138

Risk-Reward Relationship 139

Chapter 10 Building Your Portfolio 141

How the Pros Choose Stocks 142

Benjamin Graham, the Value Investor 143

How Other Professionals Invest 145

Value versus Stock Price 146

Buying and Selling Stocks 147

Portfolio Management Guidelines 150

A Reliable Way to Invest 155

Chapter 11 Basic Investment Guidelines 159

The Realities of Investing: Mind over Matter 159

Don’t Panic 160

Do Not Try to Predict the Market 160

Capitalize on Stock Market Anxiety and Euphoria 162

Remember, No One Becomes Poor Taking a Profit 163

Understanding Bankruptcy 164

Key Considerations 166

Always Remember 168

Chapter 12 Options and the Stock Market 171

What is an Option? 171

The Business of Options 172

Options Share Many Similarities with Common Stocks 173

History of Options 174

Function of Options 175

Factors Affecting Option Valuation 176

The Option Premium 179

The Option Strategy 180

Some Questions and Answers 181

Getting Started 182

Why Sellers Sell Calls: Some Strategies 183

Option Exercise 186

Option Fundamentals 187

Using Options and Margin 191

What is Margin? 192

Avoid the Premium Trap 192

Put-Call Ratios 193

Option Quotes 194

Selling Options: Prudent Investing Method 194

Chapter 13 Options and Potential Returns 197

Naked Option Writing 198

Starting a Covered Call Program 198

The Pricing of Options 199

Determining the Best Time Value 202

Determining the Best Strike Price 203

Determining the Best Underlying Stock 205

When to Take Action 206

Understanding Published Option Premiums 207

Option Symbols 209

The Standard Method of Using Options 211

My Method of Using Options 211

Chapter 14 Margin: The Credit You Can Use 215

Advantages of Margin 217

The Margin Account and Buying Power 218

Margin Account Maintenance 219

Margin Interest 220

Important Margin Principles 222

Opening a Margin Account 222

Basic Ideas and Terminology 222

Portfolio Valuation 223

Portfolio Financials 223

Margin or Maintenance Call 224

Converting Dividends into Capital Gains 224

Using Margin for Personal Purchases 224

Chapter 15 Managing an Option Income Portfolio 227

The Writing Possibilities 231

Option Selection for Option Writing 233

Selling Time Value 234

Selling a Covered Call Option 235

Stockbrokerage Commissions 237

Buy and Write Strategy (Buy-Write) 237

Formula for Stock and Option Selection 239

The Option Buyer 240

Proof That an Option Income Portfolio is a Winner 240

Follow-Up Action 241

Periodical Review of Portfolio Equity Holdings 242

Option Income Portfolio Review 245

Chapter 16 Option Income Portfolio as a Tax Shelter 247

Investment Definitions 247

The Option Income Portfolio and Taxes 249

Option Contract Closing Transaction 250

Tax Deferral 250

Tax Gains or Losses 251

Capital Loss or Gain Bank 252

Chapter 17 Options: Standard Operating Procedures 255

Rule of Thumb 256

No Time = No Time Value 256

Stock Price Goes Down 258

Stock Price Stays the Same 258

Stock Price Goes Up 259

Selling and Buying Back Calls: One Stock for One Year 262

Option Income Portfolio Procedure 263

So Why Aren’t You Selling Options? 267

Chapter 18 LEAPS 269

LEAPS Options for a Longer Term 270

LEAPS Pricing 271

LEAPS Symbols 273

Chapter 19 Conclusions 279

Fear, Greed, Hope, and One’s Self 280

Traits of the Winner 281

Traits of the Loser 281

The Surprising New Shape of the Economy 282

Madness of Crowds Returns 284

The Good News 286

Remember Time Plus Money for Successful Investing 287

Appendix Investing in Citigroup through the Years 289

Citicorp: A Financial History 289

Contrarian Investment Club History 291

Resources 295

Investing Books 295

Option Books 297

Information Links 298

About the Author 301

Index 303