What “the plot” is all about
Courtesy of Rev. Todd, Rev Todd’s IRA Plot
For several years I have been a wandering stock market pilgrim seeking the holy grail of trading. I started with $2500 from a tax rebate and started climbing the volatile active volcano of penny stocks. I barely escaped the lava and moved through a series of gurus. I journeyed through the lands that were infested with gold bugs; flew (and crashed) with the iron condors, traveled with a trading tribe of “turtle traders” until whipsawed unconscious; and flew too near the sun with Icarus-like option traders. None of these proved to be the holy grail, since I either had too little cash, too little time or too little patience since I work full-time and cannot devote myself to day trading.
In September of 2008 I discovered covered call writing. Once again I took a beating as the market underwent cardiac arrest in the ICU, but I noticed that while mutual funds were down 40-50%, I was “only” down 30% at the bottom and I recovered all my capital by the following February. I could also sleep at night and didn’t have to be glued to the screen. In the 1st quarter of 2009 I had 14 of 14 successful trades, made 15% writing covered calls, and followed that with making 14% in the 2nd quarter. Sounds like the holy grail, right? However, the VIX was at a peak and the premiums were more magnificent than the pearly gates and heavenly streets paved with gold. Then I got greedy. I succumbed to the sirens promising 100% a year and once-in-a-lifetime investments in breakthrough technologies. I started to lose money again.
I stumbled into PSW a few months ago and the buy-write strategies and hedges made sense to me. I started making money again. I didn’t find a holy grail, a messiah, nirvana, or the Kingdom of God, but I did start getting my daily bread. Oddly enough I make more money by being conservative than by taking risks.
So how did “IRA plot” come about? I assure you I am not affiliated with any Irish revolutionary groups, though I did spend a summer in Belfast. I’m talking about the Roth kind of IRAs. I recently took over managing my new wife’s IRA and my mother’s IRA. Not all the strategies at PSW work in IRA accounts. While Interactive Brokers allows me to sell cash covered naked puts, I cannot buy or sell credit spreads or naked calls. So I have to figure out how to hedge and keep the profits flowing. I noticed a number of other PSW readers had the same questions, so Phil suggested this “plot” to beat the market and the mutual funds that rampage through our IRAs. This is our stand against the bots, bums and snake oil traders out to suck the profits away from our retirement accounts.
This section is meant to be a compliment to Phil’s Stock World traders who are interested in how to handle IRA accounts. I hope it will be a joint project where other IRA traders post their ideas and comments. I will generally follow Phil’s market bias and advice and post IRA trading ideas to get the discussion going. Please note that I am not a professional trader, economist or financial analyst, but fortunately we have some of those folks here to steer us right on the big picture. I’m generally not watching the market all day, since I run programs for the homeless as my day job, plus preach on the weekends. I won’t be around to answer many questions, but you can post them and see who wants to jump in with answers. The trades I post will basically be following the advice here: http://www.philstockworld.com/2010/03/27/7-steps-to-making-40-returns/
