LIVING OFF DIVIDENDS & PASSIVE INCOME

One of my investor friends forwarded this link from Google Answers.

Finacial gurus,

I am looking for the most probable way of earning $3000 monthly with a $30,000 cash investment. This is all I can commit, no additional monies, no borrowing. I want this to supplement my regular 6am-3pm job.

I have thought about using it to trade common stocks, as a down payment to buy a small apartment or rental properties etc.. but thought maybe there were better or more likely ways to make this happen.I am not looking for a sure/guaranteed way, just the most probable way.

I can afford to loose 10-15% max. I am looking for a situation with monthly spendable cash , not theoretical or tax gains.

I am fairly good with computers and have access to high speed internet all day. I’ll pay a premium for an answer that is applicable and detailed. Vague generalizations like “start a small business” will be ignored

Thanks

The answers range from learning to play poker, selling stuff on ebay, starting online porn site, making money from adsense, day trading, prop trading and scalping nickels and dimes to investing in real estate.

While I don’t have a clue how to make $3k a month off $30k, it definitely got me thinking. If I had $30k and needed to make 10% every month, I would have to try something very high risk. Since I’ve been looking at option trades the past few days I thought I’d give that a try.

Here’s a strategy I came up with. You buy a far out call spread. Lets take the stock GDX. Its currently trading at $38 and change. Its never traded below $32 [coz its new] and it follows the price of Gold. Gold was up today and closed at $625. Just 2 weeks ago it was around $575. If you think Gold is headed up in the next few months you can make this risky bet.

You buy the March 2007 $32 Call for $8.60 and sell the March 2007 $37 Call for $4.20.
You’re out of pocket costs are $8.60- $4.20 = $4.40.[multiply this 100 coz each contract has a hundred shares and you get $440/contract]

If GDX closes at $35.40 at expiration you break even. Above $37 you make your max profit of $160/contract. But at $31 and below you lose a max of $440. $160 on a $440 investment is a 36% return in about 5 months. Annualized thats almost 90%. On a $30k investment you’re making approximately $26k. Not exactly 120% return but still pretty good!

Ok, so why isn’t everyone doing it?

Probably coz they don’t work in the long run. Here are some reasons I can think of:
1. These things only work until they don’t.
They might work a few times, but then something “unforeseen” happens like Gold dropping from $730 to $575 in 2 weeks and you’re entire portfolio is destroyed. Victor Niederhoffer lost 20 years worth of profits in one bad “investment”.
2. These things are also complex.
A lot of people don’t understand how options work. I don’t understand them well enough to explain to lay people.
3. Once everyone starts doing it, it no longer works.
This is just a general rule. If there was a great easy solution to making 100% a year everyone’ll jump in and bid down the price. [Just like people are doing on Prosper!]

But if anyone knows a sure fire way to make money without not having to work please let me know!

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