Stock Option Trading in Your IRA...

Tip #4 – Turbocharge Your IRA, Roth IRA, or 401K

Most smart people have set up a Roth IRA, 401(k), or other qualified retirement program. For some of them, it may be the only stock market investment they own. Regardless, they have made a wise move. These plans offer immediate or long-term tax advantages, and relieve the owners from depending on paltry Social Security payments for their retirement years.

But I can't understand why so many of these seemingly intelligent people, after taking the proactive move to set up a retirement account, then sit by passively waiting for something to happen. Usually, they don't use the least bit of effort or creativity to insure that they get a decent return on their invested capital.

Three Great Investment Mysteries

There are at least three great mysteries (at least to me) in the investment world:

1. Why millions of Americans pay billions of dollars each year to mutual fund managers who consistently, year in and year out, do worse than the market averages. See my Tip #3 - Never Buy A Mutual Fund...
2. Why Charles Schwab is the largest discount broker in the country when their charges are 100% - 300% higher than the fees charged by my discount broker (and other discount brokers as well).
3. Why investors do not use stock options to dramatically increase the returns they could earn in their IRA or other self-directed retirement plan.

Writing Covered Calls As An Investment Strategy

More than a dozen websites advocate writing covered calls as a superior investment strategy.  Thousands of subscribers pay millions of dollars to get advice on profitable covered calls to write.

I believe they are wasting their money.  Writing covered calls only limits the potential gain you might enjoy.

I could not find any website which advocated selling naked puts as an investment strategy.  Yet the truth of the matter is that selling naked puts has the same risk that writing covered calls does (and selling naked puts has some advantages that writing covered calls do not).

Let’s take an example.  You buy 100 shares of XYZ for $80 and write (sell) an at-the-money two-month call ($80 strike price) for $4.00.  If the stock stays flat, you will earn 5% on your money for the period (plus collect a dividend if there is one).  If you can do this six times a year (write a 2-month call 6 times), you will earn 30% annually (less commissions); or so goes the promise. 

That is the maximum amount you can earn.  No matter how high XYZ goes in price, you can never earn more than 30%.  And you will NEVER earn that 30%.  The reason is that no stock price ever stays the same.  If the stock goes up by $5 in the first sixty days, you will either lose your stock (through exercise), or more likely, you will buy back the call you wrote, paying $5, and losing $1 on the call (but making $5 on the increase in the price of the stock).  So for the first 60 days, you actually made a 5% net gain.

Presumably, you then sell another 60-day at-the-money call (now at the $85 strike) and collect perhaps $4.25.  Then the stock falls back to $80.  Your gains on the calls you wrote now total $3.25 for a 120-day period (you lost $1 in the first period and gained $4.25 in the second).  The stock is flat (just what you hoped to earn your 30% for the year). 

At this rate, your annual return will be $9.75, or 12.2% on the original $80 stock.  Commissions on six sales of calls over the year will considerably reduce this return - to 10% or so.  Not a bad return, but certainly not 30%.  To my way of thinking, it’s an awful lot of work for a 10% return.

How to Turbocharge Your IRA

What choices, then, are there to achieve extraordinary profits in your IRA? Fortunately, a few brokerage houses allow you to use option spreads in your IRA. By switching your IRA account to one of these brokers, you can use Tip#6 - The Mighty Mesa Strategy that Never* Loses Money

How Long Will It Take To Double Your Money?

I like to calculate how long it will take to double my money. The Rule of 72 is a simple tool to approximate the answer. Divide your annual percentage return into 72 and you get the number of years it will take to double your money (with compounding). For example, if you make 9% a year on your investments, it will take you 8 years to double your money.

If you make 36% each year on your investments, and compound it monthly, you double your money every two years. Thirty-six percent a year is only 3% a month - a reasonable amount to expect if you decide to employ the Mighty Mesa Strategy in your IRA investment. Since there are no current taxes on your IRA earnings, making 3% a month will indeed double your money every two years.

The Magic Of Compound Interest

If you start with $10,000 in your IRA, and earn 3% each month, in 20 years you will have $10 million in your account. You can probably figure out some way to retire with that kind of money. Of course, if you continued investing with the Mighty Mesa Strategy, you could be taking out $300,000 every month for spending money.

Wouldn't it be worth an hour or two of study to learn exactly how to get these kinds of returns? If you're ready to go, you can Sign Up Now For Insider Status. It could be the smartest investment decision you make all day.

Why Your Broker Won't Tell You About These Strategies

Your full-service broker is not likely to recommend buying and selling call options. They involve many very small transactions (lots of work on the broker's part), and generate very small commissions. On the other hand, these commissions represent a very large percentage of each option transaction. This clearly isn't fair to you.

So in many respects, your broker is doing you a favor by not telling you about these extremely profitable investment alternatives.

All Options (And Stocks) Are Not the Same

To paraphrase the sign on the side of the barn in George Orwell's Animal Farm, All Options Are Equal. Some Options Are More Equal Than Others. Some stocks are appropriate for using my trading strategies, and others are not.

Stocks that pay a significant dividend are usually not good prospects. If you want to keep the same stocks you presently own in your IRA, you may not be able to take advantage of my option strategies on all of them. (While options are available for almost all sizeable companies, the option premiums for many are so small that it is hardly worth selling them).

As a Terry’s Tips Insider, you will learn exactly which stocks and options are the best ones to consider. I do my best not to recommend specific stocks, but will give you a list of popular ones to consider. You probably already own some of them.

Are You Ready To Roll?

By now, I trust that you have read my report "How to Create an Options Portfolio That Will Outperform a Stock or Mutual Fund Investment". If not, Sign Up For My Free Options Strategy Report and get a copy of this report.

This report describes what you can do using my Tip #6 - The Mighty Mesa Strategy that Never* Loses Money. And the best part is that you can use these strategies in your IRA. This way, you can accumulate money tax-free until you retire. If you're lucky, or smart, enough to have a Roth IRA, you won't even have to pay taxes on this money when you do eventually take it out.

Using Tip #6 - The Mighty Mesa Strategy that Never* Loses Money in your IRA will involve switching your account to a broker who will allow you to put on option spreads in your IRA. Your best bets is thinkorswim - they have low commission rates, great websites, and option-friendly features of every imaginable sort. They have the best free option software, and guarantee that your order is sent to the exchange with the best price. You can set up an account on-line at thinkorswim.

If you doubled $15,000 every year, in ten years your IRA would be worth over $15 million. With this kind of money, you could retire early and pursue any (or all) of your exotic dreams.

If you're ready to start, Sign Up Today For Insider Status, and get all the tools you need to start on your way to building a fortune in your IRA.

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

The book was originally published at $19.95. You will receive an electronic version so you can start right away, and the paperback version will be mailed to you free of shipping and handling charges. Order it today at www.Making36Percent.com (Enter the discount code TEE and your cost will be only $12.94, including shipping by First Class mail).

Here is what the book looks like (but the good stuff is inside):

This could be the best investment decision you ever make. At least, you won't be risking much to learn the strategy. And it could change your investment outlook for a lifetime. Total cost, including shipping only $12.94 - www.Making36Percent.com (Enter the discount code TEE).

*Our conservative stock options trading strategy never lost money based on a 10 year back test.

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