Home Articles Options Writer Series — Financial Management For 2017

Options Writer Series — Financial Management For 2017


By Warren Kaplan

The Stock Option Writer

© Warren Kaplan 2011-2017

January 12, 2017

Like millions of others, I always use the first days of the year to layout out my goals for the upcoming year and beyond.  So, here are a few things that you might wish to do.

To layout out financial goals is important because you need to know where you are going. Look at your investment net worth. Then set goals for the New Year. My goals tend toward a 10% on the low side and a 30% gain on the high side. That means, I am satisfied if my net worth rises no less than 10% and I am elated if my net worth rises to 30% of my current worth. I review all my stocks to see if these are reasonable expectations on those holdings.  If not, then I have to decide to sell them or to use them in a different way so that they do pay off. I have a basket of closed end muni bond funds that pay me a bit over 5%. That is below my 10% goal. Can I reasonable expect a 5% capital gain from them? Not really. So why do I keep them? Because I like the 5% tax free monthly payment. There are no selling options play in that investment area.  The value of those bond funds does go up and down and I do use GTC orders on both the buy and sell side to manage those investments.  When I do sell, I actually take out 5% of the selling price and put that money into my spending account. After a sale, I leave in a buy order, GTC, so that when the bond fund goes down, I just rebuy it. However, if I had a normal job, I would just hold onto the muni bond fund and let it do its thing. If you are working with a pile of money, you can just let the brokerage firm set up a DRIP (Dividend Reinvestment Program) and allow the dividends to be reinvested monthly. And, you do not have to pay taxes.  Check out PMM and PMO.

PFE is currently one of my favorite stocks. For the last 6 years, the company has raised its annual dividend and the current rate is $1.28 a year, ($.32 quarterly).  Based on the closing price of $32.48, that is a nip under 4%. I believe that $35.73 within the next 12 months is “in the bag”.  That is a 10% gain and with the dividend, I would have a 14% gain.  That is within my “happy land” goal. For 30%, the stock needs to go to $42.22. That would be new high price territory for this stock and of course I would get the 4% dividend income.  I can sell covered calls during the year and actually take in yet more money thereby nailing down your high goal.

Fit Your Portfolio To Your long term Goals. What I mean by this is that you should have a mental or written objective. I have an 18-year-old grandson who accumulates shares in an ETF with a goal of retiring in style in 50 years. He recently set up a Roth using earned money to fund it. He adds a few dollars every month and I mean a few. It could be $10 a month as the bulk of his earnings goes to stuff he wants to buy today. The one stock he has is UPS. His stock and his ETF are set up so that the dividends are reinvested.  If he doesn’t raid his money, he will be a millionaire.  The real point is that he has a goal. Have you set a goal? Even if you are 50 years old, you should have a goal and say to yourself that you want to change activities in 18 years. Well, start saving money now. Use an ETF and stop worrying if the market is going up or down. Just keep adding money to the account.  Yes, there is a limit as to how much you can add to your Roth ($5,500 or $6,500, depending on your age).  I recently met with sales people at a telephone store. Age was between 24-29. I encouraged them to add to their 401K and to invest the money without regard of the currently market price or thought. One of the people has gotten side tracked by taking some money out of the 401K to invest in real estate. I challenged him to work in the telephone store and manage real estate at the same time. You really need to focus on what you are doing. His college major was marketing. My suggestion was that he just keeps adding money to the 401K and see about transferring to the telephone’s marketing dept. If he really wants, he could leave the phone company with all of its benefits and start a career in real estate and roll the 401K into an IRA but under no circumstance should he touch the money. 29 year olds have 40 years before collecting Social Security. Can you imagine the value of the ETF in 40 years? Especially after 40 years of compounding the dividends too?

If you really want to be involved in the stock market and to use the writing of options to enhance your income, then you need to put in time to learn the business and to execute the trades. You must make decisions. I do that nearly 50 times a day. However, my goal is not to make money and have it pile up. I am 79 years old and my goal is to travel in style so for example. My wife and I are ocean cruising Jan 21-28 (NCL) and March 3-10 (Holland America) and April 2-16 (Celebrity) The goal in life is not to make money and die very rich. The goal is to make money and to spend it and live rich.

In future articles, I will tell you how I handle taking out money from my investment accounts in order to live.

Warren Kaplan has been writing options for 50 years. He has been a stockbroker, investment banker and brokerage owner.  He currently owns and operates Kaplan Asset Management, a provider of financial assistance for small to middle market businesses. He has more than a half-century of experience in dealing with financial markets, giving guidance and consulting with management, and assisting in the development of business strategies and solutions. The Company has assisted and consulted many successful companies, such as Natures Bounty (NBTY) and Action Products International (APII), helping them to go public and trade on the NASDAQ stock exchange. His philosophy is to “do something with the profits.” “If you make $100 in the stock market, take 50 percent and invest it back into the market. Then, take the other 50 percent and buy yourself something.”

Additional disclosure: I am not a registered investment adviser and I do not give investment advice. Nothing in this article should be construed as investment advice. Investors are encouraged to do their own research and seek the advice of an investment professional before investing. Writing options is not for everyone.  This article was written for informational purposes only.