A Nice Fourth of July!

If you live in the United States, I hope you enjoyed a nice Fourth of July!

Making 7%?

Let’s go backwards in time to May 10, 2016. I discussed selling covered calls and I want to let you know how I am doing with that strategy. I bought IMAX on April 8, 2016. I sold a call that had an expiration date of April 19th and after commission I made $36. I laid out $2977.31 and in a few weeks I made $36. Annualized that $36 worked out to 14.5%.

Mark Ford in the post I made on May 10th, says to expect 7% from stocks over the next 10 years. I made 14.5%. That’s about twice what Mark says I can expect. When the option I sold in April expired, I sold another call and made $24 after commissions. Annualized this worked out to be 9.6%.

O.K. this is a little closer to what Mark said I can expect. The call I sold expired and the stock was not called away. So in June I sold another call and made $40 after commissions. Annualized it works out to 16.1%.

Take the three months (April, May and June) and add the premiums together and divide by 3 and the result is 13.4%. There was nothing fancy in what I did. I bought 100 shares of common stock that I expect will go up to $39. IMAX does not pay a dividend. But IMAX does have options and if you own 100 share lots, you can sell call options and make a little money while you wait for the stock to go up.

Is 13% better than 7%? Umm, yeah. About twice as good. 7% by the way is what a lot of annuities pay if you take a lump sum and convert it to a monthly amount. JJ (Jeremiah John) told me about the annuity that his company was offering him when he retired.

7% is an Annuity Payout

It seems that JJ had a pension where he could either take a lump sum or a joint monthly payout for he and his wife. The joint monthly payout times 12 and divided by the cash value was just over 7%. In other words JJ would have to find someplace where he could invest his money and get 7% in order to get the same amount of money that the annuity would pay out to JJ and his wife.

At the time of his retirement, JJ and I had a discussion and he asked me if I thought he could do better than 7% annual interest on the lump sum. At the time, JJ and I were developing our Covered Calls Course. And at that time, JJ and I were making an average of 15% per month on our covered call accounts.

Long story short, JJ took the lump sum. He, with my assistance lately, is still making twice what the annuity would have paid him and he still has the lump sum that can go to his heirs. The annuity did not have this feature. You got cash or a monthly check – not both.

JJ wrote a blog post about annuities a while ago. I want to follow up with an update and a warning that I see for annuities in the near future. the blog post I write will raise some flags that you ought to be aware of when considering your early retirement options.
For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!

Jim Fortune

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