FrugalJim

I’m probably going to pay some more “dues” for enrollment in the School of Stock Market for this, but I guess it’s part of the learning experience.

Today I sold my first covered call.  So what the hell does that mean?

I currently own 100 shares of General Motors.  Today it is priced at around $12.50, so my total investment is $1,250 (ps, I originally bought it for $10 per share).  And today I sold a call option for October 18th with a strike price of $15.00, and after commissions I made about $50.

A call option gives the owner the “right” to buy a certain stock for the strike price on the expiration date.  So in my case, I gave someone else the right to buy my shares of GM on October 18th for $15 each.  By doing so, I sold my right to any profits if the stock goes above $15 to whoever bought this option from me.

If, at the end of the month, the stock is below $15, the option expires and I get to keep the $50 (a 4% return on my investment in 1 month).

In essence, I’m making a bet that the stock won’t appreciate by 20%.  The only way I can lose money in this is if GM goes below $12.50 per share (which is very likely).  But considering I plan on holding this stock for at least the next year or so, I at least get a little cash from the options sale in the meantime.

If you look back on the archives of this blog, you’ll see all the issues I’ve been having with Zecco. All I want to do is fund my account and their website doesn’t want to let me do so.

Up to this point I’ve jumped through hoops to get my funding account set up, and have been really confused in the process with weird pages that don’t make sense and error messages that are very confusing.

I’ve finally got to the point where I’m ready to transfer cash into my Zecco account, but once again, I get an error. All I do is click on a link to “Move Cash”.

Needless to say, my confidence in their ability to keep my information and money safe is waning. I figure I’ll give them one more chance. If their site isn’t up and working 100% by tomorrow, I will no longer even consider funding my account. Usually I would have said “The Hell with them…” long ago, but their site does promise to save me money. I guess we’ll just have to wait and see how it plays out.

Two years ago, I got into trading stocks very heavily. I would buy and sell at least once a week. At one point, I even joined a paid for a stock trading newsletter. I followed this newsletter’s advice and rebalanced my portfolio every month when it was published. I did ok as far as returns went, but I certainly didn’t make that much. I think it was a great experiment, but the real learning happened when I did my taxes for that year.

As I looked over how many trades I did, and also agonized over how much of a pain it was to fill out those tax forms, I realized I could have doubled my returns if it wasn’t for commission. Every time I bought and sold a stock through the online broker, I gave them around $25. When I totaled this up, it came to around $2000. I wished there was a cheaper way, but back then there wasn’t.

Today I decided to look into Zecco.com (the name stands for zero commission).  This site will allow you to trade up to 20 times a month for free, as long as you maintain a minimum account balance of $2,500 (for now). Unfortunately, I am unable to fund my account because a bug in their website. Though this does worry me about giving my money to a company that has buggy software, if it works it would be worth it in the long run for free trades.

I have sent an email about the issue to customer service and haven’t received an answer, but I will keep you posted on the progress my trading.

Check out Zecco.com for yourself.

Since the wife made her decision to not go back to work, my savings account has been growing.  This cash is sitting in an account that is currently yielding around 4%.  That’s not bad, but I would like to make it grow faster.   To do this, I will be looking to do some trading in the stock market.

While this is definitely more risky, especially compared to the savings account, I feel the risk is worth it.  To attain my goal of saving $35,000, it will take over two years if I just get 4% for my money.  This time could be significantly lowered by making some good decisions with certain stocks to buy.  And if I make stupid mistakes, or the market behaves badly overall, I will not be devastated by losing some money.

I think I will start using this blog to track my performance as well as a feedback mechanism for evaluating my decisions.  Even if no one else reads this, I’ll at least have to put my rationale for trading decisions down to paper and be held accountable for them.

In the past, I’ve made investing decisions, and then bailed out on them when I got scared.  This led to significantly lower performance.  Hopefully that won’t happen this time.

To start off with, last week I made two buys.  I bought an foreign market ETF (Exchange Traded Fund), IShares EFA.  This stock consists of European, Asian, and other Far East stocks, and tracks a index called MSCI EAFE.  I bought it because I think the foreign markets are irrationally down due to the thought that the US is entering a recession.  I plan to keep it until it makes 10% or it stays in my portfolio for 90 days.  I paid $68.70 per share and bought 14 shares.

The other purchase I made was Bank of America.  This stock got hammered last quarter because of the mortgage mess that is going on.  Long term though, I think it will be able to pull out of it, and the wife and I both really like doing business with them.  I bought 23 shares for $42.25 each.  I plan on keeping this until it reaches 10% or 90 days.

Here is a rundown of my holdings: