Insane Emergency RE strategy

[dixonge]

You look like Gordon Liddy without the 'stache. Good picture.

Ha

either that or the big floating head from the original Star Trek series

 

[Martha]

Self-portrait - built-in camera on my MacBook - no lights on in the room but the screen.

Thanks for letting me be snoopy. Very good picture for one taken from a computer.

 

[Notmuchlonger]

You remind me of that guy from Lost.

Terry O'Quinn

 

[dixonge]

Thanks for letting me be snoopy. Very good picture for one taken from a computer.

I prefer this one, but the avatar restrictions here won't allow decent quality photos (this one was also taken via MacBook I think)

 

[dixonge]

UPDATE!

The plan is still crazy, but maybe not quite so insane as we'd first thought.

Throwing money into our investment account has gone well. We've deposited an average of over $4000/month since November 2008. Of course the trick is to *keep* it there or, to be really different, maybe actually have some *gains* for once!

I switched strategies starting in November. First I began utilizing credit spreads, an options technique that allows you to receive a credit up front. Then you try not to lose it. You only have to pick one direction that the market *won't* move, instead of which way it will. (ok, that's an oversimplification, but still)

Unfortunately I was still selling credit spreads on individual stocks, Apple in particular, and the volatility made it tricky. I lost 1-3% per month for Nov.-Jan. In early January I ran across a service that provided some guidance regarding market direction and range and that utilized credit spreads almost exclusively on market indexes like the S&P 500 and the Russell 2000. For the last four months I have averaged a gain of 5% per month, including February when the markets were dropping like a rock.

The overall net result is that between contributions and gains we've doubled our money since Feb. Our account balance is now about 15% above the amount we have deposited. I have run projections out to the future using conservative monthly averages for both deposits and gains and we might be able to walk away from our jobs at the end of next year with over $150,000 in the bank. Further projections, assuming a cessation of deposits and the beginning of monthly withdrawals of $2000 still gets us to an account balance of $1,000,000 by June of 2014. I suspect that before we get there we'll loosen up on the budget a bit, but just the fact that it's a possibility gives me hope. And then the pensions and SS start kicking in, right when we don't need 'em any more.

OK, probably more than any of you cared to know. But that's our plan.

 

[bsmup]

Okay, so here's what you do. Take that last post and drag it out into a 200 page book. Tour the country (world?) with that strategy and viola, $1,000,000 by next Christmas, free travel by the publisher, what's not to like?

In all seriousness, do what you love with the person that you love. I think you're plans crazy but you may say the same thing about mine.

 

[NW-Bound]

Our account balance is now about 15% above the amount we have deposited. I have run projections out to the future using conservative monthly averages for both deposits and gains and we might be able to walk away from our jobs at the end of next year with over $150,000 in the bank. Further projections, assuming a cessation of deposits and the beginning of monthly withdrawals of $2000 still gets us to an account balance of $1,000,000 by June of 2014.

That is an excellent gain, according to your projections. Obviously, other people who use this unnamed service to provide market guidance would have the same result. It sounds awfully good to be true, but I wish you well.

 

[CoolChange]

Glenn,

Have you decided what you are going to do about health insurance yet?

Concerns about catastrophic health issues are the main thing preventing me from implementing your [-]crazy, insane[/-] perfectly reasonably ER plan for myself. Even though I am currently in good health, I have quite the family history of heart disease, cancer as well as a few other obscure issues.

Thanks.

 

[dixonge]

Pre-existing conditions are going to be an issue no matter what type of insurance you choose.

Looks like WorldNomads.com can give me and my wife coverage for about $86/month. They only cover those under 61 though.

For other info you might check Billy and Akaisha's site:

Medical Options

Glenn,

Have you decided what you are going to do about health insurance yet?

Concerns about catastrophic health issues are the main thing preventing me from implementing your [-]crazy, insane[/-] perfectly reasonably ER plan for myself. Even though I am currently in good health, I have quite the family history of heart disease, cancer as well as a few other obscure issues.

Thanks.

 

[Kabekew]

Looks like WorldNomads.com can give me and my wife coverage for about $86/month. They only cover those under 61 though.

Careful, that WorldNomads only covers when you're traveling outside your country of permanent residence, and if you use USA as your permanent residence, they'll only cover emergency treatment and evacuation (i.e. they don't cover anything that can wait for your return to the U.S.). Or if you are planning to live in another country, again it excludes treatment in that country and excludes anything their "health consultant and your physician" decide can wait the 10 hours to return there.

That's why it's so cheap!

 

[dixonge]

Careful, that WorldNomads only covers when you're traveling outside your country of permanent residence, and if you use USA as your permanent residence, they'll only cover emergency treatment and evacuation (i.e. they don't cover anything that can wait for your return to the U.S.). Or if you are planning to live in another country, again it excludes treatment in that country and excludes anything their "health consultant and your physician" decide can wait the 10 hours to return there.

That's why it's so cheap!

Well, I can tell them I live in the U.S. and plan on traveling in the U.S. and still get a quote, but it does have to be 100 miles from my residence. And yes, it's primarily emergency treatment.

It appears that this particular topic has been given an FAQ thread. Lots of reading here:

http://www.early-retirement.org/forums/f47/faq-archive-buying-private-health-insurance-30756.html

 

[PX4sc40sw]

dixonge,
I say go for it. Just wish I had the same:
1. Confidence to give up a warm fuzzy blanket (your jobs)
2. Trepidation to embark on that journey into the unknown.
3. Willingness to do whatever it takes if the plan doesn't work.

If you really have that then you have the tools to make your plan work, the rest will be circumstances.

PS: Not sure if panhandlers in any city "average" $50k a year but I know one who makes almost double that. So it can be done.

 

[dixonge]

One other update to our plan - instead of just immediately moving overseas we are now planning on purchasing a used vehicle and travel trailer and exploring the nation's sights. Lots of time will be spent in national parks, BLM land, etc. Disneyland, no. Yosemite, yes. This will hopefully allow for acclimation to retired life first, then we can do the international thing later after we've got all the other issues resolved.

 

[Gone4Good]

I have run projections out to the future using conservative monthly averages for both deposits and gains and we might be able to walk away from our jobs at the end of next year with over $150,000 in the bank. Further projections, assuming a cessation of deposits and the beginning of monthly withdrawals of $2000 still gets us to an account balance of $1,000,000 by June of 2014.

Am I reading this right. With "conservative" returns you're going to turn $150K into $1MM in 3.5 years while drawing $24K per year?

You need an 80% annual return to do that.

 

[ERD50]

Am I reading this right. With "conservative" returns you're going to turn $150K into $1MM in 3.5 years while drawing $24K per year?

You need an 80% annual return to do that.

5% per month = 79.58% annual returns (1.05^12).

For the last four months I have averaged a gain of 5% per month, including February when the markets were dropping like a rock.

See? All you need is 5% average per month.

Unfortunately I was still selling credit spreads on individual stocks, Apple in particular, and the volatility made it tricky. I lost 1-3% per month for Nov.-Jan.

Volatility is what "makes it tricky", but w/o volatility, the premiums you get will be too low to make much money. VIX is at very high levels historically.

In early January I ran across a service that provided some guidance regarding market direction and range and that utilized credit spreads almost exclusively on market indexes like the S&P 500 and the Russell 2000.

Of course, this means that this "service" knows something the rest of the "the market" trading options doesn't know. Otherwise, "the market" would not price the options favorably for you, if they knew the same thing you knew about market direction. And if you have some certainty over market direction, why not buy options rather than sell them?

Expect to see a reversion to the mean over time. You might make something slightly higher than Buy&Hold, but I sure would not expect 5% over the market each month for long.

Please report how you do each option period, it should be interesting. Good luck.

-ERD50

 

[dixonge]

Volatility is what "makes it tricky", but w/o volatility, the premiums you get will be too low to make much money. VIX is at very high levels historically.

Of course if I can sell less out-of-the-money spreads to get sufficient premium due to low VIX.....

Of course, this means that this "service" knows something the rest of the "the market" trading options doesn't know. Otherwise, "the market" would not price the options favorably for you, if they knew the same thing you knew about market direction. And if you have some certainty over market direction, why not buy options rather than sell them?

Expect to see a reversion to the mean over time. You might make something slightly higher than Buy&Hold, but I sure would not expect 5% over the market each month for long.

Basically just using support and resistance and other indicators a lot of other people use. No secret sauce or kabbalistic formulas that I am aware of.

The whole point of OTM credit spreads is to attempt to discern which way the market *won't* go.....on a bull put spread the market can go way up, or a little bit up, or horizontal, or slightly down and the put spread still expires worthless. Debit spreads or straight calls require you to determine the one absolute direction the market *will* go.

Please report how you do each option period, it should be interesting. Good luck.

-ERD50

Will do - just reached 5% for June with a few trading days left to go.

 

[Gone4Good]

5% per month = 79.58% annual returns (1.05^12).

Will do - just reached 5% for June with a few trading days left to go.

Sounds reasonable . . .

So over 30 years you should be able to turn $150,000 in to $6.8 Trillion (or roughly 20% of the then expected US GDP). Not bad. I wonder why no one has ever thought of that before.

 

[ERD50]

Of course if I can sell less out-of-the-money spreads to get sufficient premium due to low VIX.....

Well, it will be interesting to see how that works for you. I don't think it will make a big difference, the odds end up about the same, just the width of the curve changes.

Basically just using support and resistance and other indicators a lot of other people use. No secret sauce or kabbalistic formulas that I am aware of.

And this is why most everyone with some investing experience questions the value of a service to be predictive over the long run. If 'a lot of people' use it, and it is no secret, then who are the idiots that are selling/buying these options at prices that are so obviously under/over-valued?

Keep in mind, that in every trade someone is on the other side thinking that *they* are the ones getting a good deal. What makes you "smarter" than them (not meant to be a slam, just food for thought)?

The whole point of OTM credit spreads is to attempt to discern which way the market *won't* go.....on a bull put spread the market can go way up, or a little bit up, or horizontal, or slightly down and the put spread still expires worthless

.

I understand that - don't you think the odds/premiums are adjusted accordingly. I don't bet on horses, so my terms might not be accurate, but isn't that like saying "Hey, if I bet on a horse to show, my odds of winning are better, so it is a better than a bet on a horse to win"? But of course, the pay-offs are different, too. Is the track, or the market really going to give you a better deal on one trade than another? Why? And since the market is open (on each side), if one was really better, it would soon get bought up taking away the advantage. Unless of course, you know something others do not.


RE: keep us informed -

Will do - just reached 5% for June with a few trading days left to go.

What options are you trading? We are one week into a four week option period. Are you trading those weekly options, I think they were created about a year ago - I have not looked at those in a while? Or maybe you don't hold to expiry, and are just tracking month-month at EOM?

So over 30 years you should be able to turn $150,000 in to $6.8 Trillion (or roughly 20% of the then expected US GDP). Not bad. I wonder why no one has ever thought of that before.

Lots of people have thought of it. Some have even tried it. Now, where is that successful group of early retirees on this board?

The trouble is, it can, and often does work for a few months in a row, which emboldens the player. But that can happen with a "system" on the roulette wheel too. But that nasty regression comes into play for almost everyone.

-ERD50

 

[dixonge]

Keep in mind, that in every trade someone is on the other side thinking that *they* are the ones getting a good deal. What makes you "smarter" than them (not meant to be a slam, just food for thought)?

First, you *did* see the title of this thread, right?

Second, the 'idiots' on the other side of the trade might be covering other positions. Or maybe they are doing what I used to do, which is to try to avoid time decay while correctly and accurately predicting the near-future move of the market with little room for error. I've simply chosen to get on the other side of that strategy.

I understand that - don't you think the odds/premiums are adjusted accordingly. I don't bet on horses, so my terms might not be accurate, but isn't that like saying "Hey, if I bet on a horse to show, my odds of winning are better, so it is a better than a bet on a horse to win"? But of course, the pay-offs are different, too. Is the track, or the market really going to give you a better deal on one trade than another? Why? And since the market is open (on each side), if one was really better, it would soon get bought up taking away the advantage. Unless of course, you know something others do not.

Doesn't sound like derivatives in general would be a profitable field based on that. And yet they are massively traded every day. I think what you are talking about is risk. If you don't take it into account and you hold every position until expiration (or assignment) then yes, everything levels out and it's difficult to profit consistently. That's where risk assessment and money management come in.

RE: keep us informed - What options are you trading? We are one week into a four week option period. Are you trading those weekly options, I think they were created about a year ago - I have not looked at those in a while? Or maybe you don't hold to expiry, and are just tracking month-month at EOM?

My spreadsheet for tracking and projections is a bit wacky. The advisory service I use calculates gains per trade. I go a step further and break it down into monthly gain, and then divide the gain by the amount of money I have available. I may adjust that to divide it by the amount of margin set-aside for each trade. But I'm approaching it from a monthly cash-flow perspective.

For example, my most recent trades were SPX Aug 780/770 bull put spreads for a credit of $1.20 For 3 contracts the net profit is $342.30. Divide that by the margin set-aside of $2657 = 12.8% gain, divide by two months till expiration, 6.4% gain per month on that trade. I do hold until expiration unless I'm force to buy the position back. If it expires worthless there's no commission. If I am later able to add a bear call spread on top of this to make an iron condor there is no additional margin set-aside so it can easily double the % gain.

Then I take all credits received in one month and divide that by the portfolio balance available for use during the month. For projection purposes I presume that I will be 85% invested each month. I use 5% as a best-case projection and 2.5% as a more conservative one. I have also added in occasional months where I have losses.

The trouble is, it can, and often does work for a few months in a row, which emboldens the player. But that can happen with a "system" on the roulette wheel too. But that nasty regression comes into play for almost everyone.

-ERD50

I've seen several different performance charts for advisory services utilizing this method. Some are much more volatile. Some use 70% probability, some use 90%. Low risk/low reward.

Of course we all know that past performance is no predictor of future performance, but so far - if it ain't broke, don't fix it. I'll gladly adjust/shift strategies if necessary, I'm not married to any strategy or advisory service.

 

[haha]

The good thing about this approach, relative to other outsize return ideas that have popped up from time to time on this board is that if implemented at a reasonable level, when/if it blows up, it won't destroy the OP.

Disillusion him perhaps, but not wreck his retirement or retirement preps.

Ha

 

[dixonge]

The good thing about this approach, relative to other outsize return ideas that have popped up from time to time on this board is that if implemented at a reasonable level, when/if it blows up, it won't destroy the OP.

Disillusion him perhaps, but not wreck his retirement or retirement preps.

Ha

Hey, I'm right here - I can hear you! LOL

Talk about outsize return ideas. My initial foray into options was LEAPS on AAPL - talk about wreckage! Ugh. It was all sunshine, rainbows and unicorns until Jan. 2008. We talked in terms of whether or not one would be getting 100% or 300% gains each year. That's why I started reading up on risk and money management.

 

[ERD50]

First, you *did* see the title of this thread, right?

heh, heh, heh - OK, I'll try to keep it light-hearted But, since you are posting and responding, you seem to be interested in feedback, so I'll give it. BTW, I hope it does not come across as argumentative, I trade options and I like to engage in debate on them to test/challenge my own ideas.

Doesn't sound like derivatives in general would be a profitable field based on that. And yet they are massively traded every day.

Well, insurance is sold (traded - there is a buyer and a seller) every day, and people who are honest and educated/honest with themselves realize that they will not, on average, make a profit. But they (and I), buy it anyway, in order to reduce risk. Now, the sellers expect to profit on average, I just don't think it is reasonable to expect a 5%/month profit in an openly traded product that does not have huge barriers to entry. Ill take a stab at a more detailed analysis of your post, but I gotta run for a while.... But I will add that measuring returns is key - If this is money that you would have just put into a Buy&Hold strategy on a SPY ETF for example, then you need to make sure you are doing apples-apples, and measuring against the returns that you would have gotten with the same amount of dollars at risk in the S&P (and count divs). Lotsa people trick themselves into some fictitious accounting here.

The good thing about this approach, relative to other outsize return ideas that have popped up from time to time on this board is that if implemented at a reasonable level, when/if it blows up, it won't destroy the OP.

Disillusion him perhaps, but not wreck his retirement or retirement preps.

Ha

Well, I'll try to give more details later, but I think you can wipe yourself out with this approach. It is unlikely, and I think it would *probably* happen slowly enough that most people would give up before losing it all. -ERD50

 

[haha]

Well, I'll try to give more details later, but I think you can wipe yourself out with this approach. It is unlikely, and I think it would *probably* happen slowly enough that most people would give up before losing it all. -ERD50

I hope you do come back to it. I know nothing about it, but the little bit I read after the OP showed up made it appear relatively safe, unless done too big.

Ha

 

[ERD50]

I hope you do come back to it. I know nothing about it, but the little bit I read after the OP showed up made it appear relatively safe, unless done too big.

Ha

I got a small start on it. The "unless done too big" is an important piece, and where most comparisons fall apart, IMO. The big returns count on big investments, and you quickly get "too big" and take on more risk than a roughly equiv Buy & Hold. If you are taking on more risk, it isn't apples-to-apples.

For example, my most recent trades were SPX Aug 780/770 bull put spreads for a credit of $1.20.

dixonge, can you tell me the price/date of SPX when you placed the credit spread? Approx numbers are fine, it just makes it easier to put in writing with numbers.

-ERD50

 

[dixonge]

I got a small start on it. The "unless done too big" is an important piece, and where most comparisons fall apart, IMO. The big returns count on big investments, and you quickly get "too big" and take on more risk than a roughly equiv Buy & Hold. If you are taking on more risk, it isn't apples-to-apples.

I try to limit risk by position sizing and diversification (multiple indexes, expiration dates, strike prices, etc.) Currently all positions are generally 3 contracts.

dixonge, can you tell me the price/date of SPX when you placed the credit spread? Approx numbers are fine, it just makes it easier to put in writing with numbers.

-ERD50

June 22, 2:00PM (Central time I think)

As best I can tell the S&P 500 was around 898 at that time.