What do you think about…..

by edbacon | November 1, 2011 3:35 pm

Porter Stansberry and Dr. David Eifrig are offering to collaborate on the Retirement Trader Newsletter. To cash flow the market they are suggesting we sell puts and calls on companies we want to own. They say they have a proven track record and will provide continuing recommendations. I am considering pursuing this, what do you think?


Source URL: https://www.stockgumshoe.com/2011/11/microblog-what-do-you-think-about/

  1. 12477 |
    Travis Johnson, Stock Gumshoe
    Travis Johnson, Stock Gumshoe
    Nov 1 2011, 03:48:07 pm

    These strategies are quite common, and if you’re looking for relatively low risk then they tend to be fairly low income generators except when volatility spikes. I don’t know what the track record is for the Retirement Trader, but it’s pretty expensive so you’d want to have a large chunk of cash to dedicate to option selling (you need cash to back up those commitments) in order to make the purchase price of the newsletter appear reasonable. Assuming that their strategy is effective, of course.

    There are several newsletters that sell options as a regular strategy — selling covered calls is the most common one (ie, buy the stock then sell a call against it to earn income), but a few put-selling advisories have cropped up over the years too, including Lee Lowell’s Instant Money Trader. We’ve had at least one subscriber review of that one that talks a bit about the strategy, and I’ve written about it a couple times: http://stockgumshoe.com/reviews/instant-money-trader/

    I’ve written about Retirement Trader before, but we don’t yet have any subscriber reviews — what we do have is here: http://stockgumshoe.com/reviews/retirement-trader/

  2. Avatar
    Nov 4 2011, 01:08:22 pm

    Hi Ed… I subscribed to this service and canceled it within a few months. To be fair in my comments, I should first tell you that I did not have the capital to buy the stocks once the options were triggered, and the strategy did not fit my personal investment objectives. However, in my opinion there are holes in the strategy, primarily associated with the fact that a falling stock can keep falling. David Eifrig is touted as a former Goldman Sachs trader where he was very successful. However, his picks tended to get triggered so you wind up owning the stock. Also, the mentality of the service seemed to be that “if I am recommending selling an option on a ‘world dominator’ stock, you should be happy to own it even if the stock continues falling because of bad overall market or sector volatility.” With this mindset, it is impossible to have any losers (unless they get stopped out in a massive drop of the market, which Porter Stansberry still thinks is possible per his End of America campaign), and therefore they do not report any. There also were two issues that suggest they are more interested in getting the subscription than full disclosure. This appears in the failure in the pitch I read to disclose that special permissions are required by most brokerage houses for trading options and another higher level approval is required for selling uncovered options. Also there was an example that suggested one could “steal” shares of McDonalds (or perhaps Microsoft) for a price so low that it was inconceivable to anyone seeing the formula that it could ever get there because someone was so “scared” that they wanted “insurance” to protect from a descent to that totally unrealistic value. The actual system trades in options within two or three strikes of At The Money (ATM) so the “stealing” of scared investors’ shares is not feasible. If the sale of options was done exclusively when there was a clear trend and/or technical or fundamental reasons to have a high probablity of movement away from the strike price, it could make a lot of sense. However, my observation of the picks when I was subscribing did not suggest that was the case. Hope this helps…Bonsap

  3. 15 |
    Bill Prince
    Nov 4 2011, 01:20:43 pm

    I have a memebership in RT as part of a package I bought with S&A Inc. Where else can you get your medical advice along with your stock picks and tricks? Current portfolio is heavy on dividend paying big blue chips, a typical mixture of bond funds and mortgage reits for fisxed income, and some commodity ETFs for Chaos Hedges. Doc Efrig come out occasionally with trading tricks & gimmicky stuff that I don’t have time to deal with since I am trying to enjoy being semi-retired and not be stuck to my brokerage account all day. I doubt I would hvae bought RT indidually but since it came in a package it has been fun to read. Porter is is touting Efrig’s having winners 41 of the last 42 picks, which is true of course. I am overall satisfied with my S&A package bought while supposedly on sale and it has been good to me. Dollar for dollar, though, Gumshoe is a better value. If I could only have one advisory, GS is the one. Pay attention when Travis says he owns something.

  4. Avatar
    Prof. Michael Adler
    Nov 4 2011, 06:17:12 pm

    There’s another flaw in the Eifrig strategy of selling ATM covered calls. I have INTC, MSFT, CSCO, XOM and BP, all of which, I’d prefer to hold. But, in early September, I sold covered calls at strikes at least 3 standard deviations (in changes) above the then current prices, for 11/19.
    All are likely to be called way at strikes which are now much less than market. I shall make minor profits but will be out of the stocks. There’s no way the difference is made up by the premiums. Selling covered calls take away the upside when markets rise.
    Can anyone think of way to maintain my positions without a major loss?

    • 15 |
      Bill Prince
      Nov 4 2011, 06:27:08 pm

      To Pod Micahel Adler

      I recently sold some covered calls for January 2012 on RGLD which were priced about 3 standard deviations up from the current price. The stock ran up steeply for about the next three weeks and the calls were in the money, stangely I didn’t get called out though the stock went on up another 5%. Then RGLD fell almost as fast as it ran up and went below the stock price at the time I sold the calls. Bottom line, I sold the calls to open for 6.10, and though they got in the money, I wass not called out. Shortly after I bought the calls to close for about $2.50 and netted around $3.50 on each one and PTL now RGLD is back up about 2 standard deviations from where it was when I sold the calls to open. I decided not to sell anymor ecalls while the market is as volitile as it is now.

      • 12477 |
        Travis Johnson, Stock Gumshoe
        Travis Johnson, Stock Gumshoe
        Nov 4 2011, 07:41:07 pm

        Not bad! It can be a bit nerve-wracking sometimes, eh? It’s been my experience that calls that are that far out from expiration don’t get exercised very often, but I don’t know if that’s universally true.

        • Avatar
          Prof. Michael Adler
          Nov 4 2011, 10:18:42 pm

          It should be almost universally true. Options textbooks demonstrate that it is never optimal to exercise an option early unless there is an intervening cash flow, like a dividend.

  5. Avatar
    Prof. Michael Adler
    Nov 4 2011, 07:31:01 pm

    Mr. Prince,
    Normally, options are not exercised until maturity although they may readily be traded before that. That more or less explains why your written calls were not called away. What saved your bacon was the sudden decline in RGLD (and your wise decision to get out of the trade).
    I’d be SO relieved were my “world dominating dividend growers” to fall by 30% before November 19 but see little chance of it.

  6. Avatar
    Nov 5 2011, 04:25:24 am

    Same thing happened to me with covered calls on MCD last month. Didn’t want to sell, but it made that jump from $85 or so up to over $90 unexpectedly, and remained there. Fortunately, I had sold the calls early enough in the month, that even buying them back while in the money, I still came out a little ahead. Think I waited until expiration day though.
    Same with Intel, but I took a loss there, although it’ll be more than made up for by the divs and future covered call action once things settle down a little.

    Those are among their world-dominators, and I have come to agree with S&A’s thinking on that, and tend to apply it to safe money. Some I buy, hold, and periodically sell calls against; others (like JNJ, SLB, KO) I routinely sell OTM (or sometimes ATM) puts against, and rarely have to own them unless I sell the put expecting to end up owning them, and not caring. I do things like MREITs and BDCs for less but probably safe income; and repeating-leg debit put spreads for experimental money.

    • Avatar
      Nov 5 2011, 04:30:34 am

      Oh, I should add that I am not a Retirement Trader subscriber, but I do subscribe to Retirement Millionaire, and one or two other S&A letters of the cheap sort. So I don’t know if there’s something specific about the strategy in that letter that I might approve or disapprove of, only that I use a similar one to that described here, and am familiar with S&A’s usual take on short options.

  7. Avatar
    Prof. Michael Adler
    Nov 5 2011, 04:09:29 pm

    I spoke too soon. My 22 covered call contracts of INTC, strike = 22, were called away on Friday when the price was near 23.74. Someone got impatient and could not wait for the optimal moment to exercise.
    So my fears have been realized. I have since sold puts, s = 22, without much hope of being hit.
    Is there any way of re-establishing my position without simply buying spot and realizing the loss of 1.74 = 23.74 – 22? ( if the price stays the same)

  8. Avatar
    Stansberry CS
    Feb 17 2012, 09:38:53 am

    If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

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