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North County Investment Club Seeking Partners – Income Generation
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My mom died just before COVID in late 2019 with nothing. I was still working a 9-5 job, investing a bit on the side. I helped when I could, but ultimately I couldn't afford to make her as comfortable as she deserved. At that point I decided to change my entire investment strategy from investing to income generation.
If you look at the large instructions and funds that most people use, they are not created to generate wealth and income for their clients, they are created to generate wealth for themselves. They have access to vast sums of money to play both sides of the small investors against each other. They sit back and collect the premium and fees and let both sides lose. That's the key to generating income and wealth. Play the game as they play it. The problem is you can't even get to the table without a lot of capital. They know that.
My partner and I spent years looking at order flow, options premiums, dealer positioning and have built up over $5mm in our fund. We win when the market goes up, and when the market goes down. Here is another specific example:
Nvidia always has very high premiums before earnings. The big funds were heavily sold into the $200 Call options and bought into the $170 Put options. That's the most likely range post earnings. We spent $1mm on Nvdia stock to get 5400 shares. We sold the $195 Call Options expiring 11/28 earning $30,000 in premium and bought the $175 Put options for $11,610 for downward protection. Here are the potential outcomes:
1. Stock if flat after earnings (+/- 1-2%). We sell the Put option for $4,000, keep the entire $30,000 in Call premium and sell the stock at breakeven. Total profit ~$25,000 or 2.5% in a week. Least likely option.
2. Stock soars after earning (+5-10%). Our Put option is worthless, but we keep the $30,000 in Call premium and our shares get sold at $195. $75,000 profit from the shares, $30,000 profit from the Call premium, minus $11,610 from the worthless Puts. Total profit of $93,990 or 9% in one week.
3. Stock collapses after earnings (-5-10%). Once again, we keep the $30,000 in Call premium (see a pattern here). We sell the Put back into the market for a $32,000 profit and sell the stock for a $21,000 loss. Total profit of $41,000 or 4% in a week.
We ended up a bit of a mix of two and three. Sold the Puts for a $24,000 gain and sold the shares for a $16,200 gain for a total gain of $70,200 or 7%.
Can you do this on your own? Sure, if you have $1mm just to get into the play. You need to buy at least 100 shares to sell a Call option (never sell naked call option no matter what you do. Unlimited potential losses). You would need a minimum of $182,000 to just do this with one option each. You also need to have access to dealer positioning data (cost ~$900/month) order flow data (cost ~$250/month) and time to plan out the scenarios and potential risk reward. If you have those things, I am not doing anything magical or have some insider secrets. This is just a math problem.
When my Dad retired two years ago, he had about $95,000 to his name. A lot for some people, but not enough to live on the rest of his life. He needed at least $5,000 per month to live comfortably (he lives in Florida). As of this writing, he has ~$210,000 and gets $8,000 per month in dividends from our fund. He fishes and tinkers with his three lawnmowers (crazy hobby, but what are you going to do...).
This is what I want for everyone. If you are retired and need income, have a cash based business and need to show income to be able to buy a house and a car, or just want to leave a bit of money in a growth fund with no fees, give us a call or text or chat.
Disclaimer: This is an informational announcement. All potential investments involve risk and may result in loss of capital. Past performance is not indicative of future results. We are an investment club that requires membership agreements (no fees ever).