SPX Credit Spread Trader

Hi coach and other experts
I am a real estate investor. I have a strategy in RE that i would like to duplicate in stock market using stocks and options.I am just a beginner, appreciate if anyone can help me out.

Basically, i buy underpriced single family houses and hold them for 1 to 3 years and sell them. Here's an example.

I bought a $100,000 valued house for $50,000. I put down 10% which is $5,000 and i rented it out.after expenses are met, i am able to save $100 from the rent money every month. Now i await the time to sell it at $100,000.


can i do this with dividend paying stocks and PUT options(Dividend being Rental income).

thanks for any help....
 
Quote from REInvestor:

can i do this with dividend paying stocks and PUT options(Dividend being Rental income).

thanks for any help.... [/B]
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Helo RE,

You can do this with CALL options. When you write covered call options, you are, in effect, renting out your stock. You sell out of the money options. Then, if the stock rises, you sell at the higher (strike) price and collect your profit. If it does not rise, you keep the premium as rent.

Mark
 
Real estate and equities are certainly different. I doubt you can buy a stock for half its value and only put down 10% and collect monthly dividends lol.

But you can own stock and bring in monthly income through covered call selling added to quarterly income of dividends if you choose a dividend paying stock. You may get called away here and there for some capital appreciation but you can re-enter the position. (just think of it as the renter having a right to force a sale :D).

If you want a downside hedge you can collar the stock by selling calls and buying puts and just collect dividends but options price in the dividends so you might not get the collar for a net credit or even.

Another way to do this is using Real Estate Closed-end Funds. Most of these funds pay out dividends monthly and you can own diversified pools of real estate through each fund. Many funds also sell at a discount to NAV so you are getting the portfolio at a slight bargain. You can diversify a portfolio of closed-end funds to reduce share price risk and simply collect the monthly dividends from multiple funds and if the fund does well the share price will grow over time and you can sell for capital apreciation like real estate.

Quote from REInvestor:

Hi coach and other experts
I am a real estate investor. I have a strategy in RE that i would like to duplicate in stock market using stocks and options.I am just a beginner, appreciate if anyone can help me out.

Basically, i buy underpriced single family houses and hold them for 1 to 3 years and sell them. Here's an example.

I bought a $100,000 valued house for $50,000. I put down 10% which is $5,000 and i rented it out.after expenses are met, i am able to save $100 from the rent money every month. Now i await the time to sell it at $100,000.


can i do this with dividend paying stocks and PUT options(Dividend being Rental income).

thanks for any help....
More...
 
Quote from optioncoach:

Real estate and equities are certainly different. I doubt you can buy a stock for half its value and only put down 10% and collect monthly dividends lol.
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No?. whats this haircut margin i am reading about?. It looks a lot like rock financial interest only loans.:D
 
if you put 10% down on real estate that is what you are liable for. If you put 10% down for stocks that is just a margin amount, you are still liable for 100% of maximum loss on stock. Real estate comes with an emebedded option so to speak where you can exercise the put to "sell" the loan/house to the bank for $0 where your cost is the down payment already made (non-recourse) :D

Quote from REInvestor:

No?. whats this haircut margin i am reading about?. It looks a lot like rock financial interest only loans.:D
More...
 
Please explain to me how buying a stock on margin DOUBLES a stock dividend? If that is true then you discovered a HOLY GRAIL for divident stock investing lol :D

If the stock is $20 and dividend yield is 5% then it is $1.00 pe share annually no matter how much margin you use to buy the stock.

Minor oversight lol...

Quote from REInvestor:

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Quote from optioncoach:

Please explain to me how buying a stock on margin DOUBLES a stock dividend? If that is true then you discovered a HOLY GRAIL for divident stock investing lol :D

If the stock is $20 and dividend yield is 5% then it is $1.00 pe share annually no matter how much margin you use to buy the stock.

Minor oversight lol...
More...

oops! dividend yield doubles not the dividend.:D
 
Quote from optioncoach:

if you put 10% down on real estate that is what you are liable for. If you put 10% down for stocks that is just a margin amount, you are still liable for 100% of maximum loss on stock. Real estate comes with an emebedded option so to speak where you can exercise the put to "sell" the loan/house to the bank for $0 where your cost is the down payment already made (non-recourse) :D
More...


well, i will lose my credit history which is even worse :eek:
 
You can certainly generate monthly income off of stocks or closed-end funds but at least in real estate a $10k down payment is max $$ risk in non-recourse mortgage. Stock ownership still has its risks so portfolio management is key.
 
Coach
a question for you.This looks like a good stock to buy.If i buy 1000 shares and also buy 10 PUTs for $0.20(20 strike) and simultaneously write 10 CALLs for $1.5(20 strike). then i am completely hedged, right?.

If at expiration, stock is above $20, then i let it call away and its less than $20 then i exercise the put and keep the premium.

either way, i get $1.3 per contract.am i missing something here?.
 

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