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If you missed the Rich Dad Forum in Orlando earlier this year, you may want to check out 13 Strategies to Grow Your Business. This e-book is based on the presentation made by business writer Jacquelyn Lynn on the Forum's opening day.
LEAPS Covered Write:
An Alternative to the Covered Call
By Tyler Craig
The covered-call strategy provides an efficient way to make money in a neutral-to-mildly bullish environment. The two critical advantages to this strategy are its ability to produce monthly income and provide some downside protection. However, two of the biggest drawbacks to a covered call are that it is a more capital-intensive trade, and it does not have as high of a return on investment (ROI) in comparison to other option strategies. Before a trader can write a covered call, he must first buy 100 shares of stock and, as you can imagine, this can get quite expensive. Some of the students I have taught shy away from this strategy for that reason. Fortunately, there is an alternative-option strategy, which not only has a greater ROI, but is also a lot cheaper. Let me introduce you to the LEAPS covered write.
LEAPS Defined:
To preface our conversation of LEAPS covered writes, let us review the basic definition of LEAPS. LEAPS stands for Long-term Equity AnticiPation Securities. Investopedia defines LEAPS as follows: “Publicly traded options contracts with expiration dates that are longer than one year.” It may be important to note there are some discrepancies as far as how much time is needed in an option for it to be considered a LEAPS. Other sources consider options with longer than six to eight months LEAPS options. For the sake of our conversation, we will consider any option with around eight months or more until expiration a LEAPS option. There is no structural difference between a LEAPS option and a short-term option other than the amount of time until expiration.
Remember, options are a decaying asset; thus they lose value as time passes (an effect known as time decay). The effects of time decay increase as options approach expiration. Therefore, due to the amount of time one is buying, LEAPS options experience less time decay.
Structure:
The basic structure to the LEAPS covered write is to buy a LEAPS call option and simultaneously sell a short-term (two to six weeks) call option against it. The only major difference in the structure of a LEAPS covered write and a covered call is that instead of buying 100 shares of the stock, we buy a LEAPS call option. Similar to a covered call, we can sell short-term call options against our LEAPS option, generating monthly income.
Strike Price Bought:
In order to keep the risk/reward characteristics of a LEAPS covered write similar to a covered call, it is important to buy a deep in-the-money LEAPS. Buying a LEAPS with a delta greater than .80 should suffice.
Strike Price Sold:
In a traditional covered call, we would sell one strike out-of-the-money. Use the same approach with the LEAPS covered write. One other way to approach this decision is to sell the strike price at which you think the stock will reside at on the expiration date of the short-call option. For example, if I was really bullish, I may consider selling two strikes out-of-the-money. Just make sure you are bringing in enough premium on the out-of-the-money option to make it worthwhile.
Finding the Right Stock:
We use somewhat of the same approach finding a stock for a LEAPS covered write as we would for a covered call. Both strategies profit from a neutral-to-bullish move in the stock. Therefore, look for stocks moving sideways or in mildly bullish up trends. We would also want a stock exhibiting lower volatility. For example, a stock that has made wild up-and-down swings over the last few months may not be the best candidate. Anytime we are looking to do a longer-term trade, such as the LEAPS covered write, it makes sense to use fundamental analysis to assess the strength of the company to make sure we are comfortable holding it. This would include making sure the company has had good earnings growth in the past and high-growth potential for the future.
Other potential candidates for LEAPS covered writes include exchange traded funds (ETFs). These investment vehicles give us the ability to trade the major indexes and sectors, such as the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and NASDAQ 100 (QQQQ). These are great trading vehicles offering very good liquidity and tight bid/ask spreads.
Comparison of a covered call vs. LEAPS Covered Write:
Let’s assume stock XYZ is trading at $186 and the current date is June 2.
XYZ Covered Call
Buy 100 shares for $186 and sell a Jun 190 Call for $5.40
Max Reward = $940
Max Risk = $18,060
ROI = 5.2% ($9.40/$180.60)
XYZ LEAPS Covered Write
Buy (1) Jan 2009 140 LEAPS call for $55.90 (9 months to expiration and delta = 86)
Sell (1) Jun 2008 190 call for $5.40 (3 weeks to expiration and delta = 44)
Max Reward = $700
Max Risk = $5,050
ROI = 13.8% ($700/$5050)
In a side-by-side comparison it is easy to see how the LEAPS covered write provides a MUCH cheaper alternative to the covered call ($5,050 vs. $18,060). In addition, we also generate a higher ROI (13.8% vs. 5.2%).
Avoiding Assignment:
By selling a call option, we are obligating ourselves to sell the stock if it rises past the strike price of the short call. Anytime we are short on options, there is always the risk of being assigned. However, that risk dramatically increases as the short option gets deeper in-the-money and as we get closer to expiration. In a covered call, being assigned is not necessarily an issue because we own the stock and are able to sell it if we receive assignment. However, in a LEAPS covered write, we do not own the stock; therefore, it is wise to avoid assignment by buying back any short in-the-money options prior to expiration. If the short option is out-of-the-money at expiration, we simply let it expire worthless and then reassess the stock and determine whether or not we want to short the next month’s option to continue the trade.
We could continue selling short-term options against our LEAPS option month-to-month. However, at some point, we will begin to run out of time on our LEAPS option. As the LEAPS option approaches expiration, we will also begin to experience more time decay. To avoid this increase in time decay, it is wise to exit our long LEAPS position around two to three months prior to expiration.
For those of you seeking a more comprehensive overview of this powerful strategy, the LEAPS covered write is taught in depth in our Advanced Covered Calls class.
Tyler Craig is a stock and options coach with Wealth Intelligence Academy®.
Angela L. and Jerry L. are a brother and sister team from Cayce, South Carolina. In just a little over a year, these “sensational siblings” have completed money-making deals on nine properties. Angela and Jerry enjoy more than $3,500 per month in positive cash flow, have a net worth of $750,000, and their real estate holdings portfolio exceeds $1 million. In August 2008, they were inducted into Wealth Intelligence Academy’s International Hall of Fame.
Note: Angela L. and Jerry L. have taken the following advanced training classes through Wealth Intelligence Academy: Millionaire U and Foreclosure Investing.
Disclaimer: Results from programs are based on individual effort and other factors, and are exceptional or atypical and are not to be expected by the average person using these programs or methods. Various advanced trainings are typically needed, each at a cost of approximately $4,990. Discount packages offered for courses purchased as a package.
E-mail scammers have developed a wide range of fake e-mails that state the recipient is due a refund from the IRS, is being audited by the IRS, is being investigated by the FBI or Department of Justice, or some other similarly alarming threat. Government agencies do not advise individuals or companies of audits or investigations via e-mail. These messages will come by regular U.S. mail, courier, or through a subpoena. If you receive such an e-mail, delete it and don’t worry about—and never respond to it or provide any information to the sender.
The same thing applies to bank notices. Your bank will not tell you your account has been frozen or compromised via e-mail. Such notices will come by telephone or regular mail. However, as more and more people bank online and are accustomed to receiving messages from financial institutions, it’s easy to get fooled. Remember that your bank does not need to ask for your account number—they know it. If you receive an e-mail from a financial institution that you don’t have an account with, simply delete it. If the e-mail comes from a financial institution that you deal with and you think there’s a chance it’s legitimate, do not click on any link in the e-mail. Instead, call the institution at the number you typically use or close the e-mail and go to the institution’s website through the address you normally use.
The Internet Crime Complaint Center (www.IC3.gov) is a partnership between the Federal Bureau of Investigation (FBI), the National White Collar Crime Center (NW3C), and the Bureau of Justice Assistance (BJA). The IC3 offers these tips for reducing the chances that you’ll be a victim of internet crime:
The Internet Crime Complaint Center (www.IC3.gov) is a partnership between the Federal Bureau of Investigation (FBI), the National White Collar Crime Center (NW3C), and the Bureau of Justice Assistance (BJA). The IC3 offers these tips for reducing the chances that you’ll be a victim of internet crime:
• Anything that sounds too good to be true probably is.
• Be cautious of any unsolicited offer.
• If you receive a cashier’s check for payment of any kind, be sure the amount of the check matches in figures and words and inspect the check for additions, deletions, or other alterations. Contact the financial institution on which the check was drawn to ensure legitimacy; obtain the telephone number of the financial institution from a reliable source, not from the check itself.
• Always be cautious when dealing with individuals outside of your own country.
• Be sure a website is secure before providing your personal information and credit card number.
• Don’t trust a site just because it claims to be secure.
• Promptly reconcile all your credit card statements and immediately investigate any unfamiliar or unauthorized charges.
• When considering any employment or business opportunity, research the company to confirm that it is authentic and legitimate and be leery when money is required upfront for instructions or products.
• Always type in a web address yourself rather than clicking on a link provided.
• Guard your personal and financial information carefully.
• Be suspicious of any e-mail requesting personal information.
• Never accept packages that you didn’t order.
• Do not open or respond to spam e-mails.
• Never purchase anything advertised through an unsolicited e-mail.
Don’t be a Victim:
How to Protect Yourself from Online Scams
How dangerous is the internet? You might as well ask: How dangerous is your neighborhood? As in the real world, your risks increase and decrease based on the type of online communities you frequent. And also as in the real world, you never know when a criminal is going to strike—because crimes occur even in the best of neighborhoods.
Simply having a computer and an e-mail account makes you potentially vulnerable to internet crime. Your best defense is knowledge and common sense: Know what type of schemes internet criminals are trying to pull off and remember that any deal that sounds too good to be true usually is.
Internet crimes tend to be financial and thieves play on two key emotions: fear and greed. The perpetrator may deliver a threat of some sort—your bank account is going to be frozen, the IRS is going to audit you, or your personal information will be compromised in some way—in order to gain access to your financial accounts for theft and/or your identity information for additional ID theft-related fraud. Or the perpetrator could offer you a quick and easy way to make some money, often by doing something that sounds innocent but will usually end up costing you far more than you thought you would make.
Con artists—named for their ability to gain the confidence of their victims—are often skilled at persuading people to participate in their scams, and they have the same access to the internet as anyone else. Some online scammers will spend months getting to know and building trust with their targets in chat rooms, on dating sites, and in other online venues before putting their scheme into action.
Let’s take a look at some of the current internet crime schemes as identified by the Internet Crime Complaint Center:
Auction Fraud
Auction fraud typically involves the misrepresentation or non-delivery of a product advertised for sale through an online auction site. In one common auction fraud, the seller posts the item as if he resides in the United States, then responds to the “winner” (buyer) with an e-mail stating that he is out of the country for some reason and requests that payment be wired directly to him via Western Union, MoneyGram, or bank-to-bank wire transfer. Using those sources makes the money virtually unrecoverable and leaves the victim with no recourse. For more details on auction fraud and how to avoid it, visit www.eBay.com and www.paypal.com.
Counterfeit Cashier’s Check
This scam targets individuals who use internet classified ads to sell merchandise or vehicles as well as landlords who advertise their rental properties online. Typically, an interested party outside the United States contacts the advertiser and agrees to make the purchase or rent the property. To make the payment, the “buyer” explains that someone owes him money and he will have that individual send a cashier’s check in the amount owed to the seller. The amount of the cashier’s check will be significantly more than the purchase and the seller is asked to deposit the check and wire the excess funds to the buyer or an associate of the buyer.
Most banks will release the funds on a cashier’s check immediately or within a day or two. Many consumers believe this means the check is valid, but it can take up to several weeks for a bank to determine that a cashier’s check is counterfeit. When that happens, the bank will hold the person who deposited the check responsible for the full amount of the check. A victim of this scam has lost the merchandise sold, the amount of money he wired to the “buyer,” and probably bank fees for the returned check.
Employment/Business Opportunities
A common scam in this category is when bogus foreign-based companies recruit U.S. residents on employment-search websites for work-at-home employment opportunities. These positions often involve reselling or reshipping merchandise to destinations outside the U.S.
Prospective employees are required to provide personal information as well as copies of their identification, such as a driver’s license, birth certificate, or Social Security card (which puts them at risk of being victims of identity theft). The employees that are “hired” by the bogus company are told that their salary will be paid by a U.S. company that is a creditor of their new employer because the employer does not have any banking set up in the U.S.
When the employee is paid, the amount of the check is significantly more than what is due. The employee is told to deposit the check and wire the excess payment to the employer’s bank overseas. When the check is later found to be fraudulent, the victim is in the same situation as victims of counterfeit cashier’s checks.
Escrow Services Fraud
Legitimate escrow services play an important role in protecting buyer and sellers in online transactions. However, scammers have been known to create phony escrow sites to which buyer victims send money and receive nothing in return or from which sellers wait for payment after shipping merchandise—payment that never comes. If you use an escrow service, be sure it’s one you know and that you can verify its legitimacy.
Internet Extortion
Internet extortion involves such activities as hacking into and controlling various industry databases, promising to release control back to the company in exchange for money. The perpetrator may threaten to compromise the information in the database unless a payment is made.
Investment Fraud
Investment fraud is an offer using false or fraudulent claims to solicit investments or loans, or providing for the purchase, use, or trade of forged or counterfeit securities.
Lottery Fraud
A common lottery scheme involves sending an e-mail advising the recipient that he has won a lottery and provides instructions on how to collect the winnings. Typically the “winner” is asked to pay an initial fee ranging from $1,000 to $5,000 and often requests for additional payments follow, but the “winner” never receives the promised jackpot.
Nigerian Letter
This common scam involves an e-mail from individuals representing themselves as Nigerian or other foreign government officials, or as victims of foreign government political situations. They offer the recipient the “opportunity” to share in a percentage of millions of dollars in exchange for assistance in placing large sums of money in overseas bank accounts. The letters go into great detail about the situation, which may include the death of a loved one, political persecution, or other sympathy-grabbing story. The recipient is solicited for money to pay taxes, bribes, and legal fees, as well as for personal information, such as bank name and account numbers. The scammer promises to reimburse the victim for the expenses as soon as the funds are out of his or her country. Of course, the money is never repaid and the victim is also at risk of additional theft by having provided bank account information.
Phishing/Spoofing
Spoofing generally refers to e-mail which is forged to appear as though it was sent by someone other than the actual source. Phishing, often utilized in conjunction with a spoofed e-mail, is sending an e-mail that falsely claims to be an established legitimate business or government agency in an attempt to dupe an unsuspecting recipient into divulging personal, sensitive information such as passwords, credit card numbers, and bank account information. Phishing e-mails typically direct the user to a fake website set up for fraudulent purposes.
Reshipping
The reshipping scheme requires individuals in the United States, who sometimes are coconspirators and other times are unwitting accomplices, to receive packages at their residence and repackage the merchandise for shipment, usually abroad. Typically this merchandise was purchased with fraudulent credit cards and the scam unravels when the defrauded merchants begin to contact the reshipper.
Reshippers are often recruited through employment offers and in online chat rooms. As part of the employment application process, the victim is required to divulge personal information such as Social Security number and date of birth, which is then used to obtain credit in the victim’s name.
Third Party Receiver of Funds
In a work-at-home scheme, a scammer in a foreign country solicits assistance from U.S. citizens. The scammer claims to be posting internet auctions but can’t receive the payments from the auctions directly due to being outside the U.S. and recruits the victim to act as a third party receiver of funds—funds that come from still other victims who think they are making a legitimate online purchase but who never receive their merchandise. The third party receiver of funds receives the money and wires it to the scammer. The scam typically comes to light when the victims complain about not receiving their merchandise.
Many online scams are obvious, but there are plenty of very sophisticated and creative criminals working on the internet. Your best strategy is to be suspicious—remember, it’s not paranoia if they’re really out to get you. Insist on verifying the legitimacy of every online transaction with an unfamiliar entity and never give out personal information unless you initiated the contact and are certain of the authenticity of the site or individual you’re dealing with.
Jacquelyn Lynn is a business writer, speaker, and author of The Entrepreneur’s Almanac.
Sell or Rent Your Property Faster Using Color
By Mark Gilliland
It is no secret that if you have two similar homes, the one that looks nicer typically sells or rents faster. A few smart color choices can make your rehab stand out in a positive way with little or no additional cost.
Color is a powerful tool and very useful in attracting people to a property. Consider that small details have a huge impact on our subconscious appreciation for any work of art. Your rehab is your canvas. Before you begin painting, consider all of the colors you intend to use and how they will work together to create a masterpiece both inside and out.
On the outside
First, let’s consider the psychology of color as it applies to the exterior of a home. Color choices send out signals to prospective buyers and renters, which is why we need to pay attention to color when we are remodeling, installing a sidewalk, or putting on a roof. If, for example, you replace a sidewalk, consider not only the design and function, but how the color will affect the property as a whole.
Color can affect our mood. For instance, yellow is a color of joy and happiness, but it is also the color of caution and deceit. The sight of yellow flowers sends our subconscious a message that we need to be cautious. With this in mind, avoid using yellow flowers and decorations on the exterior of the home where people get their first impression of the property. This phenomenon seems to prevail most in small quantities, which researchers think is related to a yellow traffic light, whereas a house painted entirely in yellow does not necessarily have negative connotations.
If the exterior of the house is undergoing improvements and will be painted or have new siding installed, it doesn’t cost any more to choose colors that complement rather than clash. It is the details that make the difference. If you’re replacing a roof, you’ll probably be replacing the gutters as well. Gutters are made in approximately 24 different colors that are standard; you can choose from those standard colors without increasing the cost of the project.
There are also the shutters and the front door to consider. Careful selections can set a house off and make it shine without additional costs. If you are not planning to replace the front door, a paint job is inexpensive and will make a huge difference. The last main exterior component is landscaping. Since an entire article (or book) could be devoted to this topic, it will suffice to say that you must consider the landscaping when choosing your colors. Your plant materials should have colors that work with the rest of the home.
On the inside
Now let’s turn our attention to the interior. Many so-called real estate experts advise neutral colors throughout inside. While this is fine to a certain extent—you want potential buyers to be able to see their own belongings fitting in the rooms without clashing—too much neutrality can leave a prospective buyer or renter rushing to escape a drab-looking house. Use neutral colors for most of the interior, but add color or texture for some visual interest. You don’t want prospective buyers or renters to be bored by the time they’ve seen the third or fourth bedroom and find that it looks exactly the same as the first.
Some affordable techniques to create a break in the neutrality without being jarring include installing inexpensive window coverings, painting trim and baseboards different colors, or installing colored carpet.
You want the bathrooms and kitchens to stand out and make a positive impression as well. Permanent fixtures (sinks, tubs, shower stalls, commodes) should be a neutral color. Accent with mirror frames, window treatments, or other decorations. As long as you do not choose a fad color that will date your rooms, you can put some color in your countertops. The family room carpet and a few select walls can also make some color statements, if the color is chosen carefully. An accent wall is easy to change and can potentially affect the entire flavor of the house.
If interior decorating is not your thing, don’t worry. Paint specialty stores and home supply stores hire recent interior design graduates who will help you free of charge; all you have to do is ask. These stores typically have photo samples and even computer programs that allow you to plug in different colors to see how they go together. Just remember the power and affordability of color as a tool to sell and rent your properties.
Mark Gilliland is a real estate mentor for Wealth Intelligence Academy® and has a B.A. in Interior Design from KSU.
Sell or Rent Your Property Faster Using Color
By Mark Gilliland
It is no secret that if you have two similar homes, the one that looks nicer typically sells or rents faster. A few smart color choices can make your rehab stand out in a positive way with little or no additional cost.
Color is a powerful tool and very useful in attracting people to a property. Consider that small details have a huge impact on our subconscious appreciation for any work of art. Your rehab is your canvas. Before you begin painting, consider all of the colors you intend to use and how they will work together to create a masterpiece both inside and out.
On the outside
First, let’s consider the psychology of color as it applies to the exterior of a home. Color choices send out signals to prospective buyers and renters, which is why we need to pay attention to color when we are remodeling, installing a sidewalk, or putting on a roof. If, for example, you replace a sidewalk, consider not only the design and function, but how the color will affect the property as a whole.
Color can affect our mood. For instance, yellow is a color of joy and happiness, but it is also the color of caution and deceit. The sight of yellow flowers sends our subconscious a message that we need to be cautious. With this in mind, avoid using yellow flowers and decorations on the exterior of the home where people get their first impression of the property. This phenomenon seems to prevail most in small quantities, which researchers think is related to a yellow traffic light, whereas a house painted entirely in yellow does not necessarily have negative connotations.
If the exterior of the house is undergoing improvements and will be painted or have new siding installed, it doesn’t cost any more to choose colors that complement rather than clash. It is the details that make the difference. If you’re replacing a roof, you’ll probably be replacing the gutters as well. Gutters are made in approximately 24 different colors that are standard; you can choose from those standard colors without increasing the cost of the project.
There are also the shutters and the front door to consider. Careful selections can set a house off and make it shine without additional costs. If you are not planning to replace the front door, a paint job is inexpensive and will make a huge difference. The last main exterior component is landscaping. Since an entire article (or book) could be devoted to this topic, it will suffice to say that you must consider the landscaping when choosing your colors. Your plant materials should have colors that work with the rest of the home.
On the inside
Now let’s turn our attention to the interior. Many so-called real estate experts advise neutral colors throughout inside. While this is fine to a certain extent—you want potential buyers to be able to see their own belongings fitting in the rooms without clashing—too much neutrality can leave a prospective buyer or renter rushing to escape a drab-looking house. Use neutral colors for most of the interior, but add color or texture for some visual interest. You don’t want prospective buyers or renters to be bored by the time they’ve seen the third or fourth bedroom and find that it looks exactly the same as the first.
Some affordable techniques to create a break in the neutrality without being jarring include installing inexpensive window coverings, painting trim and baseboards different colors, or installing colored carpet.
You want the bathrooms and kitchens to stand out and make a positive impression as well. Permanent fixtures (sinks, tubs, shower stalls, commodes) should be a neutral color. Accent with mirror frames, window treatments, or other decorations. As long as you do not choose a fad color that will date your rooms, you can put some color in your countertops. The family room carpet and a few select walls can also make some color statements, if the color is chosen carefully. An accent wall is easy to change and can potentially affect the entire flavor of the house.
If interior decorating is not your thing, don’t worry. Paint specialty stores and home supply stores hire recent interior design graduates who will help you free of charge; all you have to do is ask. These stores typically have photo samples and even computer programs that allow you to plug in different colors to see how they go together. Just remember the power and affordability of color as a tool to sell and rent your properties.
Mark Gilliland is a real estate mentor for Wealth Intelligence Academy® and has a B.A. in Interior Design from KSU.
Tax season is stil almost two months away, but it's not too soon to start thinking about your 2008 return.
Here is an article from the current issue of the newsletter published by Anderson Business Advisors, PLLC -- the great team that teaches our Asset Protection and Tax Relief advanced training.
Can You Take a Home Office Deduction?
If you plan to run your small business out of your home, you may be tempted to “write-off” many of your household expenses. But how do you know what is deductible or not? Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible items.
However, if part of the home is used for business purposes, a taxpayer may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.
In order to claim a business deduction, you must use part of your home:
• Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or
• On a regular basis for certain storage use, such as inventory or product samples, as rental property, or as a home daycare facility.
In addition, if the taxpayer works as an employee, this deduction can be claimed only if the regular and exclusive business use of the home is for the convenience of his or her employer and the portion of the home is not rented by the employer.
“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not considered regular use.
Non-business, profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.
Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.
The foregoing is only a brief summary of the home office rules. If you are currently running a business out of your home or anticipate doing so, please call our office for further details.
For more information about - Anderson Business Advisors, PLLC, go to http://www.andersonadvisors.com/.