LIVING OFF DIVIDENDS & PASSIVE INCOME

In my last post, I mentioned that Berkshire Hathaway was undervalued and a good buy that the current price of $76 per B-share.

It turns out that it’s probably a better buy than anyone expected.

Buffett just announced that he’s spent $10.7 billion buying IBM stock, as well as a few billion dollars on CVS and VISA.

I currently own BRK-B, and I’d like to increase my exposure to it. But I’m strapped for cash.

So how do I make money from being LONG BRK when I’m short on cash?

Time to look at option strategies.

When most investors are bullish on a stock, they buy CALL options on it. They fork over some money (called a premium) and have an option to buy that stock at a specific price (called a strike price) at a future date. If the stock price exceeds your strike price, then you’ve made money.  Read more... (718 words, 8 images, estimated 2:52 mins reading time)

Friday’s stock market had a distinct sense of deja vu about it. Even though it was down overal, I was reminded of the crazy dotcom days in late 1999 when any tech stock could rally 25-50% in a single day!

One of my friend’s subscribes to a stock newsletter. Periodically he gets an email alert informing him when a stock is about to make a significant jump. He often sends them to me and I usually look at them and then ignore them. Yesterday he sent me an email about a China Clean Energy Inc (CCGY.OB).

By the time I got the email, it had already jumped 30% that day, but I really liked the chart. It had retreated about 15% from the highs of the day and looked like it was ready to make a move back up to the $2 range.  Read more... (744 words, 14 images, estimated 2:59 mins reading time)

Even though I’m not a fan of private-equity firms (check out How Capitalism Really Works) and especially not Blackstone, I did however put some money into a private-equity ETF, the PowerShares Listed Private Equity Fund(PSP) and I also bought some stock in Sears Holdings(SHLD) today.

SHLD had a great day today, up nearly 6%. Technically, both of them look very strong (well atleast SHLD does!). I’ve had my eye on SHLD last week and I was looking for a good entry point. I was hoping to get it for around $165, but it didn’t quite make it there. Instead it shot up today and I managed to get in at $172.38. It closed at close to the highs of the day at $174.06.  Read more... (212 words, 9 images, estimated 51 secs reading time)

As previously mentioned, I entered a synthetic long stock position using options in Seabridge Gold.

As a recap, a synthetic long stock position is buying the calls and selling the puts to offset the cost the of calls. (If you don’t know what calls and puts are, I suggest you read up on option trading. Options Made Easy: Your Guide to Profitable Trading is a good book).

With $60 I was controlling $1650 worth of stocks, or about 100 shares. On Friday, or about a week later, the stock was up just over a dollar, so I sold 2/3s of the call contracts and all of the puts. On the call side, I netted a profit of $0.40 or $40/contract and on the put side I netted an additional $0.35 or $35/contract. I actually closed out all the puts and kept only 1/3rd of the calls.  Read more... (387 words, 9 images, estimated 1:33 mins reading time)

Even though my CFC and WCI option strategies backfired, my JRCC puts did quite well. Enboldened by that success, I decided to try some more option trading.

I’ve been keeping my eye on Seabridge Gold (SA) for a few months now. A few months ago, I sold some naked puts on SA hoping that it wouldn’t drop more than $2 and I would get to keep the premium when the options expired worthless. It worked out exactly as planned and I made a few hundred bucks on the trade.

I’m still bullish on the stock and yesterday it gapped up on very high volume with absolutely no news. The options jumped too, but late in the evening the stock trended back down and filled the gap. The options dropped as well and I bought some November 17.5 calls for 1.95/contract. I also sold an equivalent number of November 15 puts for $1.35/contract bringing my net price to $60 per 100 shares.  Read more... (475 words, 8 images, estimated 1:54 mins reading time)

In an earlier post on investing on news, I had sold puts on JRCC.

Well JRCC was up sharply in the past few trading sessions. I closed out my position by buying back my naked puts and netted a 38% profit (sold the puts for 1.95 and bought them back for 1.20).

There’s a chance the stock might go higher. But, I bought puts because it was a speculative trade and the idea was to make a quick (or somewhat short-term) buck. It went up, I made money so its time to get out.

Thats the good thing about options. They prevent you from getting married to your positions. That can be a dangerous thing if the market turns against you (speaking of which, I’m really glad I closed out my Countrywide puts after they started going against me. When I closed my puts, the stock was at $37 – now its almost $42).  Read more... (196 words, 8 images, estimated 47 secs reading time)