Video #4 in our 4-part series, featuring Bryan Perry, Investing in LEAPS (Long-term Options) for Short-term Income.
VIDEO #4 TRANSCRIPT:
Roger: Hi, this is Roger Michalski, publisher of Eagle Financial Publications. I am here again with Bryan Perry, editor of the Cash Machine newsletter.
So, Bryan, we’ve had a very interesting video series about LEAPS – I’ve learned a lot about LEAPS. LEAPS are, of course, long-term options and we’ve learned that we can control tens of thousands of dollars’ worth of big name stocks for a fraction of the cost, while, at the same time, we have a very unique strategy where you can get instant income on these plays.
So, my question to you is can you use these in retirement accounts?
Bryan: Good question, Roger. The answer is yes. Having checked with all the major online firms, be it Schwab, Fidelity, Ameritrade – the primary big ones, interactive brokers – they allow for various different levels of options trading in retirement accounts now.
Historically, it was only covered calls on common calls and that was it. This is actually what is considered a tier one risk level, which is the lowest risk level of options trading, and compliance departments with each of these brokerage firms have their own profile of how they want to allow people to trade options.
The fact that LEAPS are so long-term, usually nine months to two years out, lowers the risk of options trading, and selling covered calls against that lowers that even further. So, typically, it almost parallels that of just doing a straight covered call sale on a common blue chip stock and that’s how they categorize it as a tier one trade.
Having checked with other firms, it does fall into that category for 90% of the brokerage firms that most people trade on these platforms. So, it’s ideal, because option income is considered ordinary income, so every time you sell a covered call against a LEAP, that is going to be taxed as ordinary income if it is in a cash account. Whereas, if it is in a retirement account, it doesn’t matter – it’s all tax deferred.
Roger: Keep that money away from the government.
Bryan: Yes, and if we do manage to hold onto these LEAPS for a year and a day, and we just sell covered calls against them all the way up, then, ideally, that’s a nice way to look at it. Theoretically, that’s a wonderful way to get a total return.
Selling that LEAP in a year and a day does qualify for a long-term capital gain, just like a common stock, so that’s a really interesting way that we can also take advantage of the tax system in that manner as well.
Roger: It’s a great system. However, to the ordinary investor, as you said the pros do this often, it’s hard to look day by day at this stuff, it’s a full time job. That’s why we’re really excited to announce our latest service, Instant Income Trader, so, Bryan, tell us a little about that service.
Bryan: Well, this is exactly what we’re modelling this service after. Instant Income Trader is what it sounds like – we bring in instant income over the course of a year.
We’re going to try to have five to six separate covered call trades with each position, culminating in a total return of income of somewhere between 40% and 80% over the life of that year, by selling these covered calls out-of-the-money covered calls against the underlying LEAP. In doing so, we have a system that continues to build on itself over the course of the year.
Ideally, you want to have seven to ten stocks working for you all the time, and have a nice concentrated portfolio of the very best crème-de-crème names that the market is feeding on, and selling covered calls every other month that are out-of-the-money, and then getting appreciation from the underlying security, as well as free money from the covered calls, strategy side of the short-term calls.
That’s really where the service, I think, takes on a life of its own. At the same time, I instruct everybody on every step of every trade – we’re using limit orders, good till cancel orders. All it takes is a cup of coffee and about two to five minutes to put these trades on – people’s time once a week when we come out with this service. It will be a weekly service, and I will give everyone instructions on how to execute these trades. And, at the same time, I’ll be identifying risk with every trade as well.
I think it really gives people a complete opportunity to exploit the LEAPS market from two directions: One, by being able to leverage into the best names in the world that are controlling the leadership of the market in general, and two, being able to sell volatility back to the market on these very same names and generating a fantastic income that approaches, in some cases, between 70% and 80% for some of the names that we are going to be highlighting.
Roger: Right, so you are in great hands with Bryan Perry. You need an expert to help guide you through these trades, who will be with you every step of the way. That’s why we have developed Instant Income Trader. To learn more about Instant Income Trader, you can click the link right below this video and we look forward to welcoming you as a new subscriber.
Thank you for watching this video series, thank you for Bryan for all of your great insight over these videos. I know a lot more about LEAPS than I did beforehand, and I hope you did too.
Remember, click the link below to learn more about our new service.