There are two great things about being a marketing copywriter — first, if you put it in quotes, you can say almost anything … and second, there are already a thousand successful ideas out there, you don’t need to come up with a new one each time you’re looking for an angle.
This time we’re looking at an ad for Zachary Scheidt’s Taipan-published New Growth Investor — and the claim is that we can “pirate” (always in quotes) cash from the same companies that lost us so much money during the stock market’s collapse.
Here’s what Zachary says:
“Unfortunately, if you’re like the majority of Americans, you were likely sitting around, losing money, while these fat cat execs were running rampant… spending millions of dollars irresponsibly.
“But that didn’t have to be the case…
“Especially when an obscure SEC regulation allows you to legally “pirate” some of these recklessly spent millions for yourself.
“Take AIG, for instance. Last year, top execs doled out $440,000 for a top-notch retreat to the St. Regis resort in California and tossed down $86,000 for a hunting trip in England… all the while standing in line for $85 billion worth of government bailout cash.
“That’s why Frank Lighton had absolutely no problem ‘pirating’ $53,700 from the public account of AIG (#1419777000) once he found out he had the legal right to do so.”
Does that sound a little bit familiar? I don’t know if this Taipan letter uses the same copywriters as Stansberry & Associates (they’re both Agora affiliates), but the letter is very similar to one that we looked at a couple times … if you’ve been around for a while, you might remember that we were teased about secret code “CKUCU” and urged to say “Screw You” to Ken Lewis and a whole list of other nefarious cash-hog CEOs (ie, “Richard Fairbanks is a Jerk”).
That ad (one of my writeups of it is here if you’re interested) was all about how you could “scam” (also always in quotes) the corporate accounts of these fat cats to put some cash back in your wallet.
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This ad is not about “scamming” the CEOs, but about “Pirating” their corporate accounts. To tell you the truth, though, the pitch behind the verbiage sounds like it’s pretty much the same thing.
Here are a few clues as to what he’s talking about:
“You see, there’s a little-known clause buried deep in Section 77F of the SEC code… and it gives you the legal right to plunder cash from any one of 3,000 corporate accounts.”
Huh? I think they forgot the quotes on that “plunder” bit — you can read that section of the US Code if you’d like to (it’s title 15, section 77f — a copy is here if you’re interested), but of course it doesn’t say that you can plunder anything. “Plunder” with quotes? Maybe. That part of the code details the fees and procedures for registering securities.
But there’s one other little clue in that sentence — “3,000.” That’s a number that’s frequently thrown around to refer to the number of publicly traded stocks that are “optionable,” or that have options contracts available (meaning, you can buy or sell call or put options through an exchange).
Now, the “scamming” cash teaser was all about selling covered call options, and it looks like this one is more or less the same thing — implying that selling away the potential upside of a stock’s movement to another investor is akin to “pirating” money from the company (absurd on its face, but it has a certain logic if you don’t think about the details). It’s possible Scheidt is talking about other things too, though, so let’s look a bit more at the tease.
“… just a couple years ago, Lee Raymond, the former CEO of Exxon, walked away with one of the richest retirement packages in history… worth nearly $400 million.
“And this doesn’t include the cool $51.1 million Raymond earned in salary in 2005… or the $3.6 million he earned in bonuses the year before.
“In other words, while the American public was scalped at the gas pumps over the past few years, Lee Raymond was making more money than is humanly possible to spend in a lifetime.
“And that’s why, when a small group of people had the chance to “pirate” huge chunks of cash from Exxon in 2008… they didn’t hesitate for even a second….
“And I’ll bet it felt great.
“But windows of opportunity like these don’t stay open forever…
“As I mentioned, to take advantage of the six booty-stuffed accounts I’m about to reveal to you… you must get in on or before June 22, 2009, to “pirate” $109,122 for yourself.”
So … some more good CEO bashing in there (not that they don’t often deserve it, but it has little to do with the trading Scheidt seems to be referring to). And then he gets into a few more clues about the process for “pirating” your cash:
“When you “pirate” cash from a public corporate account… it’s possible you may receive your cash in as little as a single day. Sometimes it may take a little longer.
“On March 12, 2009, the window for “pirating” cash from account #2344870 (ticker symbol LO) was wide open.
“Those few investors who took notice were able to get their claims in…
“Among those who “pirated” windfall amounts of money was Don Niedenfuer.
“After toiling away for several years in marketing and sales, Don learned a secret that would pay off in a big way.
“In short, after a promotion at his company (Lorillard), he learned the secret to “pirating” cash from public accounts.
“At 67, Don cashed in on his first huge payday, pocketing $28,338.
“It took a little over a month for the cash to become available for deposit, but Don certainly wasn’t complaining…”
OK, so if we look at that there are a couple things we could be dealing with — we can ignore the dollar amounts, because they’re absolutely meaningless unless we know how much was invested (the teasers almost never tell you how much someone started with — if Don had $5 million in Lorillard stock, a $28,338 payday is almost meaningless … if he had $100,000 in LO, it sounds like a much better return … the copywriters know that you will subconsciously apply whatever dollar amounts are used to your own lifestyle and accounts, and probably start daydreaming about a new boat).
So if we don’t look at the dollars we see that this is someone who owns Lorillard shares (probably — he works there), and that the window was wide open on March 12 to “pirate” the cash, but he wouldn’t get to deposit it for about a month. The options expiration date for April would have been April 18 this year, so that is just over a month before the contract would expire and any obligations would be erased, therefore freeing up any cash tied to that contract for “deposit.” That’s assuming that LO had an April options chain, which I haven’t double-checked.
So if Don was going to “pirate” cash from this options trade immediately, he would have to sell an option. He could sell a call option against his holdings, if he had stock in LO, and that would be a covered call sale — the shares were at $60 on March 12, so he could have sold someone the right to buy the shares at $65 on or before April 18, which, since the shares were in the middle of a nice spike up, would have probably netted him something close to $2 per share. Then, if the stock stays below $65, he just keeps the $2 per share as income and the contract closes on April 18. If the stock rises above $65, he has to sell his shares for $65 each regardless of the market price … if the stock falls, he keeps his $2 but, of course, is also holding depressed shares.
It’s also possible to “pirate” cash in this way through more complicated and sometimes riskier options trades — Don could sell a naked call, which means he doesn’t own the stock, and that would tie up a big chunk of a margin account because he’s taking on an obligation to sell the shares at $65, and it’s possible that the stock could double to $120 overnight and he’d be out a huge bundle. Unlikely, perhaps, but possible, which is where the risk lies in naked options. He could also sell a put option, giving someone the right to sell him the shares if they fall below a certain price — in that case, you also get to pocket the cash, but you are stuck with an obligation to buy the shares at a set price regardless of how they might fall, so if the stock gets cut in half overnight due to some kind of scandal or catastrophe, you might have to buy it at twice the market price to satisfy your obligation.
And of course, this could just be a simpler kind of options trade, too, Don could be using his “inside” information to buy call options, knowing that the shares were bound to go up, and then he could cash in his call options at a nice profit before the expiration date if he was right. This is the kind of options trading that most people do, speculating on a stock advancing and hoping for a windfall while knowing that you can’t lose any more than you invested. Of course, it also usually doesn’t work, which is why it’s generally believed among sophisticated investors that the folks who consistently make money in the options market are those who sell options, not those who buy them. I don’t know if that’s true or not, but I hear it all the time.
I suspect that in that example above they are talking about covered call selling, but it’s not 100% certain. Zachary gives another example, though, that’s a little bit less clear:
“However, you don’t always have to wait a month…
“As I mentioned, it’s also possible to receive your cash in as little as 24 hours.
“That’s what happened with account #3516510 (MasterCard) just last year.
“If you had been aware of what was going on, you could have “pirated” $1,181 on November 4th… and received every cent of that cash the very next day.”
Now, this is clearly some kind of play around the Mastercard earnings release — MA released their earnings on the evening of November 3, and shot up on November 4. If you had bet against the stock when it was climbing (they did say pessimistic things about the future, to some extent, in their conference call), you could have perhaps done quite well within 24 hours — you could have sold covered calls on the fourth at a high price, for probably a decent premium since the shares were spiking on optimism, and yes you could have pocketed that cash the very next day.
But in that scenario it would be the same as the Lorillard trade, the expiration date wasn’t for at least a couple weeks, so if you wanted to erase your obligation in addition to pocketing the cash within a day you would have had to buy back that call option at a lower price. Of course, in this case it would have been wiser to just hold it, since the shares didn’t return to that high level of November 4 until April.
So, I can’t tell you with certainty exactly what strategies Scheidt is pursuing — I know there are a lot of sophisticated options traders who visit us here at Stock Gumshoe with some frequency, so perhaps they’d like to suggest trades that might work for you. The teaser does tell us that Zachary has six trades lined up, but doesn’t tell us exactly which stocks they are. You can read the ad here, if you like, to see if you can divine any more detail, but essentially what you’re betting on with this newsletter is that Scheidt will be able to steer you to very profitable options trades of some kind.
Will it work? Well, I don’t know much about him — the only other time I remember writing about Scheidt was just a few weeks ago, when he was teasing his “Silver Shots” for the Death Cross Trader, another options trading newsletter. With silver collapsing a bit in recent days, those “Silver Shots” are actually back down to close to where they were when I first wrote about them, so the jury’s out on those (though there are still six months to go before expiration).
If this ad for New Growth Investor really is pitching primarily options trades like selling covered calls, as seems likely from my reading, do note that this would be a bit of a turn for that newsletter — New Growth Investor has been focused on global stocks and growth opportunities, to my knowledge, not on options trading or on US companies. It might be that the tough markets of the past year made them scale back a little bit and look for a more winning strategy, much like Tom Dyson did with his dividend-focused 12% Letter when stocks were crashing and he began to push selling covered calls as a way to generate additional income, though this technique is more of a natural fit for an income-focused newsletter.
One other thing to note: High or falling volatility is a good thing for sellers of options; low or rising volatility is bad, all else being equal. Volatility has been falling but is now substantially lower than it was over the winter, which means that the options premiums are falling. If premiums are falling you make less for selling options because investors are forecasting less movement in the share prices of the underlying stocks. Many traders would advise against selling covered calls when premiums are relatively low, because it doesn’t generate enough cash to be worthwhile, but, of course, every situation is different — and volatility, though way down from the highs, is still historically pretty elevated.
Oh, and just a little extra tidbit for you — did you notice how those companies were each teased as having a special corporate “account number” that you could plunder? Wonder where they got those numbers, or if they just made them up?
Well, the account number for Master card was #3516510.
And as of May 21, the average 3-month trading volume was 3,516,510 shares.
The account number for Lorillard was #2344870
As of May 22, the average 3-month trading volume was 2,344,870 shares.
United Rentals? Super secret account number: #1238260
Average daily volume, again as of May 22 (wonder when the copywriter was writing this ad?): 1,238,260
The first one we saw in the ad?
“It’s what Ronald Seitek did once he saw that account #1667220 (the corporate account for a company called Ryder) was ripe for the picking.”
Ryder’s average daily trading volume, as of May 22? You guessed it, 2,667,220 shares.
Coincidence? Or does a copywriter not even need to bother coming up with fake numbers anymore? At least trading volumes do have an impact on share price.
So … would you like to “pirate” some money from corporations? Got a better way than by selling call options, or think I’ve misinterpreted the meager clues on this one? Think this was the same copywriter who wrote the “Scam the CEOs” ads for Stansberry? Let us know.