Here are a few. Analog Devices, Bank of America, Berkshire Hathaway of course, and General Dynamics. Stocks can lose their moats by the way. You need to keep an eye on that.
best options strategies for advanced beginners
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Here are a few. Analog Devices, Bank of America, Berkshire Hathaway of course, and General Dynamics. Stocks can lose their moats by the way. You need to keep an eye on that.
Intrinsic value when it comes to stocks, is the opposite of cut and dry. Just by making small changes to the discount rate, or expected future cash flows can give you very different numbers. Ideally, you want its intrinsic value to be so far below its price, that even if you are wrong by 20%, it is still cheap. It is just an educated guess. This is one way of doing it.
Discounted Cash Flow (DCF) Analysis:
This method estimates the present value of all the company's future cash flows, essentially projecting its earning potential. Key steps involve:
- Estimating future cash flows: This requires analyzing historical data, financial forecasts, and industry trends to predict future earnings, dividends, or free cash flow.
- Choosing a discount rate: This reflects the risk associated with the investment and the cost of capital. Higher risk or higher cost of capital demands a higher discount rate, lowering the present value of future cash flows.
- Discounting future cash flows: Apply the chosen discount rate to each projected cash flow year to determine its present value.
- estimating the terminal growth rate of the earnings and discounting that also.
- Summing present values: Add up the present values of all future cash flows and the terminal value to get the intrinsic value of the stock.
The term "economic moat," popularized by Warren Buffett, refers to a business's ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.
https://www.investopedia.com/ask/answers/05/economicmoat.asp#:~:text=The term "economic moat,",and their riches from outsiders.
The Oracle of Omaha has been referring to his moat analogy for decades. In order to be successful, a company must have a definite moat, aka a competitive advantage that allows it to maintain pricing power and better than average profit margins.
These factors usually translate into more significant returns for investors over the long-term as companies can return more capital to their owners. Businesses with durable competitive advantages do not have to invest much back into the enterprise to maintain this competitive advantage, unlike commodity businesses.
Buffett on the moat
Buffett explained his moat principal at the 1995 Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting of shareholders.
"What we're trying to do," he said, answering a question from the audience, "is we're trying to find a business with a wide and long-lasting moat around it, surround -- protecting a terrific economic castle with an honest lord in charge of the castle."
"What we're trying to find is a business that, for one reason or another -- it can be because it's the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers' mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it."
When he's found a business with a large moat around it, the next stage in Buffett's process is to try and figure out what's keeping the moat intact:
I think of Apple and Microsoft as being a couple...
So would you advise that I should stick to CC's and maybe cash secured puts, since I will get into trouble if I try more complicated things?
I even specialize mainly on CC and CSP only
Sometimes adding also some LongPuts on top of them (CC then turns into a Collar etc., but I'm free in varying the qtys).
And I'm doing this in a CashAcct (not MarginAcct), w/o the dangers of ever getting a MarginCall etc.
That's enough for me. I'm happy with that solution.
The advantage with a CashAcct is: you are not dependent on margin (ie. money lent from your broker), instead on your own money only. For me this means freedom and independence in all my trading decisions. The broker cannot force you to liquidate your positions (some even do it automatically themselves at any time), or ask you to deposit more funds (MarginCall in MarginAcct).
Regarding CashAcct see also my other posting.
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You won't actually need to close the call. By the time the fundamentals of the stock change, the calls would've been expiring worthlessly already but your stock would've been incurring potentially huge losses that may or may not be covered by all the premiums that you have earned from selling the calls. Is that a risk that you are willing to tolerate? That's what you need to consider when doing CC's.
Did you incur any losses on the Boeing stock? If yes, did your profit from CC's cover them? Just curious.
Robert Morse
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Covered Call Strategies: One Fact and Eight Myths- Financial Analysts Journal, Vol. 70, No. 6, 2014-17 Pages Posted: 4 Jun 2014 Last revised: 27 Jan 2017 - I think this paper is well written and worth the read for those looking to do covered calls and cash secured or naked puts. I found it here - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2444993. I like this chart of the One Fact and Eight Myths Summary-which they go on to explain.
One Fact
Index covered calls provide long equity and short volatility exposure.
Eight Myths
1 Risk exposures can be expressed in a payoff diagram.
2 Covered calls provide downside protection.
3 Covered calls generate income.
4 Covered calls on high volatility stocks and/or shorter-dated options provide higher yield.
5 Time decay of options written works in your favor.
6 Covered calls are appropriate if you have a neutral to moderately bullish view.
7 Overwriting pays you for doing what you were going to do anyway.
8 Overwriting allows you to buy a stock at a discounted price.
When you are new to trading options and the market, and have only been focused on up trending markets, or if you have little time to devote to picking stocks or trends, you tend to look for what is easy. You forget or ignore the risks of single stocks AND broad based indexes. They are very real. And, these strategies do not have offsetting upside wins, as this strategy blocks them. The wins are small vs risk.
One Fact
Index covered calls provide long equity and short volatility exposure.
Eight Myths
1 Risk exposures can be expressed in a payoff diagram.
2 Covered calls provide downside protection.
3 Covered calls generate income.
4 Covered calls on high volatility stocks and/or shorter-dated options provide higher yield.
5 Time decay of options written works in your favor.
6 Covered calls are appropriate if you have a neutral to moderately bullish view.
7 Overwriting pays you for doing what you were going to do anyway.
8 Overwriting allows you to buy a stock at a discounted price.
When you are new to trading options and the market, and have only been focused on up trending markets, or if you have little time to devote to picking stocks or trends, you tend to look for what is easy. You forget or ignore the risks of single stocks AND broad based indexes. They are very real. And, these strategies do not have offsetting upside wins, as this strategy blocks them. The wins are small vs risk.
Whenever this question comes up I always ask the person, are you also an advanced beginner in analyzing stocks?
Optiosn are derivatives, they do not exist in a vaccuum. If you are not good at all at analyzing stocks, price charts or making good analytical directional bets on stocks (lets not get into vol trades with beginners) then there are no easy step right into beginner option strategies...because you do not know what you are doing with the underlying even.
Covered calls are only simple to explain. But for a newbie stock investor, they are putting lipstick on a pig. I am never a fan of one strategy 100% of the time with options. You have to adjust to the market, the underlying and later on in your journey, vols. Selling calls against your stock position as a newbie is just cutting off your upside and folling you into thinking you have some cushion.
Advanced beginner option strategies are almost all of them when used properly, but none of them if you do not even know how to analyze the market or specific stocks, IMHO.
Optiosn are derivatives, they do not exist in a vaccuum. If you are not good at all at analyzing stocks, price charts or making good analytical directional bets on stocks (lets not get into vol trades with beginners) then there are no easy step right into beginner option strategies...because you do not know what you are doing with the underlying even.
Covered calls are only simple to explain. But for a newbie stock investor, they are putting lipstick on a pig. I am never a fan of one strategy 100% of the time with options. You have to adjust to the market, the underlying and later on in your journey, vols. Selling calls against your stock position as a newbie is just cutting off your upside and folling you into thinking you have some cushion.
Advanced beginner option strategies are almost all of them when used properly, but none of them if you do not even know how to analyze the market or specific stocks, IMHO.
I have a different view; better specialize in as few strategies as possible (for example CC and CSP only), and then just trade only those stocks and their options that are tradable with your specalized strategies.
Rationale: there are enough tickers to find by scanning all tickers.
It gets too complicated the more strategies you have to learn. One can't be good in all, one rather has to specialize only in a few as the topic of options is complicated.
With CC and CSP it's not meant to trade just bullish only.
A bearish construct can be created this way:
CC: add a LongPut with strike > strike of the ShortCall
CSP: add a LongPut with strike > strike of the ShortPut (aka Bear Put Spread)
So, there you have all the constructs for all market situations (bullish, bearish, and sideways),
and the latter two constructs above give even a spread-like protection by capping the losses.
Just my 2 cents...
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