To a large extent, due to its derivatives involvement, twenty-five years ago, Orange County California became the largest municipality in U.S. history ever to file for bankruptcy. Warren Buffett’s partner Charlie Munger stated that saying that accounting for derivatives in America is a sewer is an insult to sewage.

We have previously mentioned that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

Warren Buffett once stated that derivatives (puts and calls) are financial weapons of mass destruction. At the same time, his partner Charlie Munger said that saying that accounting for derivatives in America is a sewer is an insult to sewage.

To a large extent, due to its derivatives involvement, twenty-five years ago, Orange County California became the largest municipality in U.S. history ever to file for bankruptcy.

We usually start our comments about how our fearless, intrepid investor manages her options activity. She usually writes (sells) covered calls on SPY on Mondays, expiry date on the Fridays of the same week at a strike price sufficiently out-of-the-money to give her a 1% per month premium income. That will significantly reduce the possibility of being assigned while yielding a decent return.

We have previously stated  that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

We usually start our comments about how our fearless, intrepid investor manages her options activity. She usually writes (sells) covered calls on SPY on Mondays, expiry date on the Fridays of the same week at a strike price sufficiently out-of-the-money to give her a 1% per month premium income. That will significantly reduce the possibility of being assigned while yielding a decent return.

We have previously stated  that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

Our fearless, intrepid investor usually writes (sells) covered calls on SPY on Mondays, expiry date on the Fridays of the same week at a strike price sufficiently out-of-the-money to give her a 1% per month premium income. That will significantly reduce the possibility of being assigned while yielding a decent return.

We have previously stated  that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

Our fearless, intrepid investor usually writes (sells) covered calls on SPY on Mondays, expiry date on the Fridays of the same week at a strike price sufficiently out-of-the-money to give her a 1% per month premium income. That will significantly reduce the possibility of being assigned while yielding a decent return.

We have previously stated  that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

Our fearless, intrepid investor usually writes (sells) covered calls on SPY on Mondays, expiry date on the Fridays of the same week. She was busy with personal issues yesterday, Monday, February 13, so she did not get around to doing that and will do so today.

Two questions.

First, is there a big difference between writing covered calls on a Tuesday instead of a Monday, expiry date Friday of the same week?

Well, the closer we get to the expiry date, the smaller the premium income available. But the inevitable market fluctuations often offset that difference, therefore, it is not a major concern.

The second question is why does she choose SPY instead another of the thousands of securities on which investors can write covered calls?

SPY is an exchange-traded fund (ETF) that tracks the S&P 500, which itself is a good representation of the American economy as a whole, the world’s strongest economy in the last 200 years. SPY is the best choice among the few ETFs tracking the S&P 500. It is the largest, meaning that orders are filled reliably and instantly. Further, it has the smallest bid/ask spread, which is an expense to investors, an expense they frequently ignore.

Individual stocks carry a great deal more risk than the American economy as a whole does. That is why we recommend against investing in individual stocks. We have previously stated  that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.

She also decided to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That will significantly reduce the possibility of being assigned while yielding a decent return.

On February 4, 2023, from Ray Bursey, Newfoundland, Canada,

Questions:

I have just seen this and wondered if you agree and what you see or feel the economy may be heading for.

https://youtu.be/rQWmrVk-gpo

Monday Morning Millionaire Program Answer:

Thank you for your question, Ray.

Over the last several decades, house prices have risen at about half the rate of the rise in the S&P 500.

Follow the Case Shiller index for details. (https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index)

For quantitative tightening, follow https://en.wikipedia.org/w/index.php?search=quantitative+tightening&title=Special:Search&profile=advanced&fulltext=1&ns0=1

So where is the economy heading and what can we do about it?

The most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She sold just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week. NVAX declined to a far greater extent than the premium income she received for that transaction.

It is far better to sell covered calls on the American market as a whole by using an exchange-traded fund (ETF) that tracks the S&P 500. SPY is the best. It is the largest, oldest, and most heavily traded US ETF. It has the narrowest bid/ask spread, one of investors’ expenses that most tend to ignore.

Also, writing (selling) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more, significantly reduces the possibility of being assigned while yielding a decent return.

An article sent to our subscribers on January 20, titled “Freedom from Ownership”, attracted many viewers. It was improperly credited as being authored by Timothy Brown.

The author of the article is Dr. Drew Markham [drew@roicorp.com],  with a comment from Timothy at the end of the article.

I apologize.

Milan