3 years out - officially a millionaire and one step closer to saying goodbye to EM

[HemorrhagicShock]

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Rad here. I’ve been researching real estate for the past 9 months and just dropped my first $150k into a syndication. First of many. If you spend some time looking into it, you’ll see how amazing real estate is. The tax benefits, cash flow, and appreciation. Good advice and experienced investors on this thread.

What was your process/approach over those 9 months?

 

[chocomorsel]

Wow I’m 5 years out no debt and I have a net worth of 400k 🙁

I don’t even have a house I really need to get my fiancial goals in order

You aren't alone. Change now and you will be fine. I am 10 years out and still far behind. Bad marriage.
Some of these people live a very cheap lifestyle. I wish I could, but I have responsibilities. Other humans who depend on me.

 

[ProReduction]

Wondering about this as well. I had read the previous thread regarding stock trading and options, and the options strategy didn't seem like any kind of homerun. It seemed laden with a lot of risk if you aren't a 2-3+ year options/stock trading veteran. I guess the best time to learn is now!

Exactly. I need more details. Being the insurance company is great until every policy holder makes a claim in the face of a large disaster. If you have a huge number of naked puts you've sold way out of the money, it is usually free money collecting the premium, until the market is down big and then your contracts are getting exercised. Most brokerages buffer against this risk. And even in the best case scenario, it is simply a poor rate of return on a huge amount of money at 300k, especially when you have to be able to cover all potential losses with balance in account.

 

[emergentmd]

The tax benefits, cash flow, and appreciation. Good advice and experienced investors on this thread.

Ding ding ding. If you just want something passive, do syndication but you lose access to capital until it sells. I like RE that allows me to make decisions when I want/need. The tax benefits is the difference maker.

 

[AD04]

Rad here. I’ve been researching real estate for the past 9 months and just dropped my first $150k into a syndication. First of many. If you spend some time looking into it, you’ll see how amazing real estate is. The tax benefits, cash flow, and appreciation. Good advice and experienced investors on this thread.

The time you spend researching, would you have came out if you spent that research time working in medicine and throwing the extra earnings into S&P 500?

 

[HemorrhagicShock]

Ding ding ding. If you just want something passive, do syndication but you lose access to capital until it sells. I like RE that allows me to make decisions when I want/need. The tax benefits is the difference maker.

I am a ***** so excuse the newbie question, but are tax benefits better with direct ownership of properties vs. throwing in on a syndication?

Also in terms of strategy/ease is it better to create a portfolio of a lot of smaller units/doors, or perhaps focusing on a handful of higher-quality properties. Granted I assume the question comes down to personal preference, but I really want a hands-free (or minimal hands) approach to real estate investing.

I have the cash, I just don't know where to begin. I assume I am the dumb doctor investor so that already puts me at a disadvantage haha!

 

[emergentmd]

I am a ***** so excuse the newbie question, but are tax benefits better with direct ownership of properties vs. throwing in on a syndication?

Also in terms of strategy/ease is it better to create a portfolio of a lot of smaller units/doors, or perhaps focusing on a handful of higher-quality properties. Granted I assume the question comes down to personal preference, but I really want a hands-free (or minimal hands) approach to real estate investing.

I have the cash, I just don't know where to begin. I assume I am the dumb doctor investor so that already puts me at a disadvantage haha!

More units/multi family can range from duplex to apt complexes. The more units, the more you hedge any bad events. Apt complexes is a big undertaking that I am just not interested in and difficult unless you have a good reliable team which is almost impossible to find good stable help now a days. So I chose duplexes and short term rental for the most part.

I like to remodel and have some good reliable contractors so I prefer to buy low/renovate/increase value/increase rent. I typical buy something that is rentable with stable tenants. Let them pay the carrying costs and let the property appreciate. Once they move out, I decide if I am in a position to renovate and increase rent vs cash out into a 1031 vs touch up increase by alittle. It all depends if I have cash or not, if there is anything I want to 1031 into, etc.... too many variables.

In the past 7 yrs I have bought a total of 13 properties and done 3 1031s with half being duplexes(Duplexes are much better than SFHs in my opinion). Currently have 4 duplexes, 3 vacation STRs, 2 SFHs. All have their plus and minuses. Duplexes if executed well has the best ROI. STRs have the highest appreciation play plus I get to use. SFHs was purchased for a lifestyle play (one across my kids school so they can walk home between school/sports activities) and another 10 min walk from University if they ever go.

I will likely be only buying duplexes or land (Just to add to my portfolio) going forward.

 

[forchinet121]

The time you spend researching, would you have came out if you spent that research time working in medicine and throwing the extra earnings into S&P 500?

Almost certainly working more would’ve been more profitable and much less risky

 

[Taurus]

What was your process/approach over those 9 months?

Took a 6 week real estate course (not necessary but at this point I have more money than time). Read books and watched (and continue to) lots of YouTube videos. It opened my eyes to the world of and advantages of real estate. After paying 400k in taxes last year, I wanted to find ways to give less to Uncle Sam. It’s quite amazing how people can use real estate to legally reduce their taxes to zero. I also wanted a passive income stream. Try to determine where you want to be on the real estate investment spectrum. I thought long and hard about it and decided I didn’t have the time or expertise to own rental property. I can barely keep up with my own home maintenance. I don’t want to fix a leaky faucet at 3 am. After owning my own home and doing remodeling work, I learn that I hate dealing with contractors, most of whom lie through their teeth and do crappy work. At this time, syndications make most sense to us. Completely passive. Get tax breaks, annual cash flow, and eventual cash out. Major downsides are you lock up your money for 3-10 years, need more upfront capital, have less leverage with your capital, and often need to be accredited investor. By learning more about real investment strategies yourself, these syndications are less of a black box and magical. I’m no real estate expert but I have general understanding of how they achieve their results. If you have the time and are great at rehabbing homes, by all means own rental properties and have more control and leverage.

 

[Mbekweni]

Wife and I have 7 figures into syndications at this point, 5 years out from residency. Super important to have an experienced and well vetted sponsor, audited financials, and ideally experience with a few of the boom/bust real estate cycles. Keep in mind that some of the enthusiasm in real estate both active and passive is due to the incredible run the asset class has had over the past 10 years. I expect that to moderate substantially especially when compared to the performance of the last 2 years or so. That being said, comparable performance to the SP500 maybe a bit higher due to careful use of leverage would be my expectation. I am conservatively expecting 10-12% returns long term but wouldn’t be surprised it it was more like 7-8% (minus inflation). Most of the investments I have deliver 6-8% cash flow with tax protected distributions and then a bolus of money when the asset sells, targeting 12-18% IRR. So far have been meeting or exceeding that.

I do passive because I’m super busy at work and can make more money churning through the patients rather than trying to reinvent the wheel with real estate. I’m also blown away by all the tricks that a great sponsor can pull to maximize value in a deal. With a standard buy>improve management>renovate>resell for major profit due to higher NOI deal they can do a far better and cost effective remodel faster than I ever could. One of my favorites is Tides Equities. They get a number of multi family properties in a city and then get a warehouse. Same design aesthetic for all their properties, same appliances etc. Facades, signs etc are done in the warehouse and delivered installed on property shortly after closing. Within a month of taking ownership all of the exterior and common spaces are redone and then it’s lighting fast private space renovation whenever there is turnover. So so much better that I could ever do…I’m not even playing in the same league. Then there are other deals such as one with senior housing where different Medicaid contract bumps cash flow to 15-18% COC out of the door, essentially guaranteed by the government because of connections and knowing the industry (ie making a few changes and classifying a portion as memory care). Or another where the sponsor convinced city and state government to permanently waive property taxes in exchange for a percent of low income units that dramatically improved COC, subsidized and stable government paid rents for a portion. I could go on. I have 3-4 sponsors I like and just wait until a deal comes across that I like and if it matches with my cash flow state I invest.

I also don’t want to manage remotely and my local area doesn’t have good price to rent ratios.

However I do all of this after maxing 401k, defined benefit plan, HSA, backdoor Roth etc. My only personal debate is how much to do real estate vs taxable investing.

Real estate in general has lower correlation to the stock market, with most publicly traded reit about 0.5-0.7 correlation. Not bad, even compared to bonds where total bond fund might be 0.2-0.7 depending on bond type and duration. I bet private real estate is even lower since publically traded reit has more wild swings based on asset value plus expected future change. We all know expectations swing all over the place with the news cycle so at least valuations which happen monthly to yearly based on market value decrease some amount of real and perceived volatility.

I also know myself and having a solid long term investment with less incentive to peek and tinker is appealing.

Given current inflation pressures real estate is widely thought to be a pretty good investment with more resilience to inflation. Caution with new deals though-l watch for good up front cash flow and not too dependent on exit cap rate which can falter with inflation and financing cost pressures. Also not too much leverage given uncertainty in the market and ideally plans for variable rates debt (interest rate swaps etc).

Lack of liquidity can be an issue so plan carefully.

If I can get 6% cash flow tax protected from real estate that is far better than 4% plus some portion of tax with just equity investments and I feel this has to get you to FI faster even if returns aren’t as high as promised. It is also far easier to cut back or think about retirement with cash flow rather than having to sell a security. Obviously cash flow investing shouldn’t be a crutch but it is addicting and amazing to start getting money dropped into the checking account without having to log another draining shift.

I am jealous of the extra tax benefits like short term rental tax loophole and REPS for privately held real estate but I’m not sure if that will be worth it if both my wife and I work in medicine full time, plus extra work involved. We may go this route if something appealing comes our way but I won’t push too hard.

 

[forchinet121]

Wife and I have 7 figures into syndications at this point, 5 years out from residency. Super important to have an experienced and well vetted sponsor, audited financials, and ideally experience with a few of the boom/bust real estate cycles. Keep in mind that some of the enthusiasm in real estate both active and passive is due to the incredible run the asset class has had over the past 10 years. I expect that to moderate substantially especially when compared to the performance of the last 2 years or so. That being said, comparable performance to the SP500 maybe a bit higher due to careful use of leverage would be my expectation. I am conservatively expecting 10-12% returns long term but wouldn’t be surprised it it was more like 7-8% (minus inflation). Most of the investments I have deliver 6-8% cash flow with tax protected distributions and then a bolus of money when the asset sells, targeting 12-18% IRR. So far have been meeting or exceeding that.

I do passive because I’m super busy at work and can make more money churning through the patients rather than trying to reinvent the wheel with real estate. I’m also blown away by all the tricks that a great sponsor can pull to maximize value in a deal. With a standard buy>improve management>renovate>resell for major profit due to higher NOI deal they can do a far better and cost effective remodel faster than I ever could. One of my favorites is Tides Equities. They get a number of multi family properties in a city and then get a warehouse. Same design aesthetic for all their properties, same appliances etc. Facades, signs etc are done in the warehouse and delivered installed on property shortly after closing. Within a month of taking ownership all of the exterior and common spaces are redone and then it’s lighting fast private space renovation whenever there is turnover. So so much better that I could ever do…I’m not even playing in the same league. Then there are other deals such as one with senior housing where different Medicaid contract bumps cash flow to 15-18% COC out of the door, essentially guaranteed by the government because of connections and knowing the industry (ie making a few changes and classifying a portion as memory care). Or another where the sponsor convinced city and state government to permanently waive property taxes in exchange for a percent of low income units that dramatically improved COC, subsidized and stable government paid rents for a portion. I could go on. I have 3-4 sponsors I like and just wait until a deal comes across that I like and if it matches with my cash flow state I invest.

I also don’t want to manage remotely and my local area doesn’t have good price to rent ratios.

However I do all of this after maxing 401k, defined benefit plan, HSA, backdoor Roth etc. My only personal debate is how much to do real estate vs taxable investing.

Real estate in general has lower correlation to the stock market, with most publicly traded reit about 0.5-0.7 correlation. Not bad, even compared to bonds where total bond fund might be 0.2-0.7 depending on bond type and duration. I bet private real estate is even lower since publically traded reit has more wild swings based on asset value plus expected future change. We all know expectations swing all over the place with the news cycle so at least valuations which happen monthly to yearly based on market value decrease some amount of real and perceived volatility.

I also know myself and having a solid long term investment with less incentive to peek and tinker is appealing.

Given current inflation pressures real estate is widely thought to be a pretty good investment with more resilience to inflation. Caution with new deals though-l watch for good up front cash flow and not too dependent on exit cap rate which can falter with inflation and financing cost pressures. Also not too much leverage given uncertainty in the market and ideally plans for variable rates debt (interest rate swaps etc).

Lack of liquidity can be an issue so plan carefully.

If I can get 6% cash flow tax protected from real estate that is far better than 4% plus some portion of tax with just equity investments and I feel this has to get you to FI faster even if returns aren’t as high as promised. It is also far easier to cut back or think about retirement with cash flow rather than having to sell a security. Obviously cash flow investing shouldn’t be a crutch but it is addicting and amazing to start getting money dropped into the checking account without having to log another draining shift.

I am jealous of the extra tax benefits like short term rental tax loophole and REPS for privately held real estate but I’m not sure if that will be worth it if both my wife and I work in medicine full time, plus extra work involved. We may go this route if something appealing comes our way but I won’t push too hard.

How old are you?

 

[Mbekweni]

How old are you?

38/39

 

[forchinet121]

38/39

You’re 5 years out of residency and you have over 1 million dollars all in syndications? Is your entire portfolio in real estate or are you just a baller?

 

[Mbekweni]

You’re 5 years out of residency and you have over 1 million dollars all in syndications? Is your entire portfolio in real estate or are you just a baller?

Net worth about 2.5M, real estate just under half of that. I was aiming for 30% RE but real estate has done really well while stocks got blasted this year so my asset allocation is off. Got lucky with school costs. Med school had good financial aid, I got a few merit based scholarships and even did some part time work during school. Also during third year an anonymous donor paid 50% of everyone’s tuition. Much appreciated. Ended up graduating with about 17k in debt that I paid off in the first few years of residency. I have been working hard, hustling and saving a lot. Generally living like a resident with a few splurges like a nicer car along the way. My wife is a dentist but works in public health, low 100k for most of our relationship but she just got PSLF for massive loans which we are very excited about. Her NW makes up about 500k of the 2.5M for us.

I do admin, work a ton, and have a really good group of sites with high hourly so it all comes together for very good comp at least over the last 2+ years at full partner. Before that was pretty average. So I feel lucky and am doing well. My goal is for us to hit 3M in NW by early next year with about 75-80k in passive income from real estate which I would consider FI and then I want to cut back to a more normal schedule. I keep feeling like the sky is going to fall in EM or the house of medicine overall but it hasn’t happened so honestly, after all the hustle I kind of wish I had taken a bit of a more balanced approach the last few years. maybe with a few good vacations I’ll be ready to head back into the grind longer term.

 

[cyanide12345678]

No, not a typo. I’m sure I’ll clear 6 figures but that’s my point. I don’t need or want to spend hundreds of thousands of dollars annually, I’m really happy to live a lifestyle off of <100k and put the rest to investments, and I can’t imagine salaries will drop below an amount that I could live and retire comfortably even with a declining market.

So what happens when you end up like 60 percent of ER doctors and get burned out? Heck most of us come out of residency burned out. When you realize that your career has a shelf life, all of a sudden 100k per year isn’t enough to grow enough of a nest egg to walk away comfortably. Also you speak as though you don’t have much debt or expenses. Wait till you have a family to feed, bills to pay, a mortgage to take care of, and childcare expenses 😉 life changes. I also lived on $1000-1200 per month when i was a third year in medical school. 100k sure seemed like a lot then. Have a kid or two and then we’ll talk 😉

 

[cyanide12345678]

Can you please explain your options strategy in-detail because I must be missing something. You say you have 30% of your portfolio (300k) in "options (premium harvesting through naked puts)". Either you are selling naked puts way out-of-the-money and always making a very small amount with these contracts (maybe you have a very good IV on them working with very volatile underlying equities), or you are near-the-money with a much better premium for you, in which case with the market down 20% broadly earlier this year, I would have expected your contracts to be getting exercised left and right during Q1 and Q2 2022 and you eating big losses. Is it rich via 1,000 $10 bills over time or have you taken big losses this year?
Also, do you have the highest level options trading level approval through your broker? Uncovered options is usually highest level. Or are you simply ensuring that your potential losses can be covered by the 300k in your account (some brokers allow uncovered option trading with lower level approval if account can cover all potential losses)?

Im balancing leverage and being ridiculously out of the money essentially.

I almost never have the intention of owning the shares, i will drop the strike price if needed while extending the timeline if absolutely essential. But i did lose some money when i was doing leaps, so i have gone back to my original strategy that I’vi still haven’t lost money with - very far out of the money naked puts, around 45-60 days from expiration, close at 50 percent profit, plus potential rollover and drop price if option strike is close to executing. As of today I’m 5 percent down on my account, see attached screenshot. Which isn’t bad compared to 14 percent spy and 23 percent qqq, though i did have a good day today because i closed 800 contracts on pins today and made some 18k today. Those 800 contracts with 12.5 strike for pins with 3rd wk of Sep 22 s expiry was my only open position until i closed it today. I opened 3 positions today - Pypl, meta, ewz. I’m probably closing pypl tomorrow since they are up 13 percent after hours and I’ll probably hit 50 percent profit on my premium tomorrow. See attached for current holdings. The current holdings which is about 13k of premium is only using 100k of buying power, i still have $200k of buying power that i need to utilize, I’m just waiting for a negative day where everything is red and vix jumps up when I’ll add on a bunch more puts to my current holdings. I’ll probably use another 100k of that buying power and keep 70-100k of buying power on the sidelines as a margin maintenance buffer.

And yes i do have the highest level of options account. I can do any trade with it. In fact, if i had done cash covered puts, id need 1.2 million in my account for the trades that I’ve done at times. But essentially i never plan on letting any option execute - i never should need 100 percent of the money. I only need to be able to maintain my margin maintenance balance, which is fairly easy to do.

 

[emergentmd]

Net worth about 2.5M, real estate just under half of that. I was aiming for 30% RE but real estate has done really well while stocks got blasted this year so my asset allocation is off. Got lucky with school costs. Med school had good financial aid, I got a few merit based scholarships and even did some part time work during school. Also during third year an anonymous donor paid 50% of everyone’s tuition. Much appreciated. Ended up graduating with about 17k in debt that I paid off in the first few years of residency. I have been working hard, hustling and saving a lot. Generally living like a resident with a few splurges like a nicer car along the way. My wife is a dentist but works in public health, low 100k for most of our relationship but she just got PSLF for massive loans which we are very excited about. Her NW makes up about 500k of the 2.5M for us.

I do admin, work a ton, and have a really good group of sites with high hourly so it all comes together for very good comp at least over the last 2+ years at full partner. Before that was pretty average. So I feel lucky and am doing well. My goal is for us to hit 3M in NW by early next year with about 75-80k in passive income from real estate which I would consider FI and then I want to cut back to a more normal schedule. I keep feeling like the sky is going to fall in EM or the house of medicine overall but it hasn’t happened so honestly, after all the hustle I kind of wish I had taken a bit of a more balanced approach the last few years. maybe with a few good vacations I’ll be ready to head back into the grind longer term.

Great Job. I wish I started when 22 yrs ago out of residency instead of 7 years ago. I would easily have 5x my wealth by now

 

[emergentmd]

The time you spend researching, would you have came out if you spent that research time working in medicine and throwing the extra earnings into S&P 500?

As a doc you can always have a large amount of wealth when you approach your 50's. We all can keep working and just shoving it into a S&P but my goal is to generate cash flow so I will never touch my estate. Also, when you give kids 2M in property and show them that they can live off the income generated, it is much more powerful than giving them $2M IRA that many will just buy something dumb.

 

[namethatsmell]

I have 3-4 sponsors I like and just wait until a deal comes across that I like and if it matches with my cash flow state I invest.

Who are the sponsors you like?

 

[cyanide12345678]

Wondering about this as well. I had read the previous thread regarding stock trading and options, and the options strategy didn't seem like any kind of homerun. It seemed laden with a lot of risk if you aren't a 2-3+ year options/stock trading veteran. I guess the best time to learn is now!

See my answer above. Not really as risky if you never let any contracts near expiration and expire.

One could argue that it’s maybe even less risky.

For example:

Ewz is currently $28.5. I can open 450 $23 strike contracts on ewz that would expire in 80 days lets say and get $25,000 in premium. That’s based on current premium from today. 8 percent return in 2.5 months, not terrible, I’m happy with it. Ewz currently has the lowest price to earnings ratio it has had in decades, lower than 2008. Its dividendYield is around 7 ish percent, and essentially is around 9 or so percent if it drops to $23. That dividend yield is going to give a solid floor aka support to the index price. For those 450 contracts, I’ll only use 2/3rd of my buying power and will have a 100k buying power. Also this leverage doesn’t cost a Penny in interest, it’s free leverage.

So 3 things can happen:

1) ewz goes up. My options value drops, instead of waiting 80 days, i buy back and close the position and open a new position somewhere else (like i closed 800 pins contracts today and opens my current holdings).

2) ewz goes down but does not drop 20 percent and stays above $23 in the next 2.5 months. Great option exires worthless. I made $25k - which makes it safer than buying the underlying which actually dropped slightly less than 20 percent.

3) ewz drops below $23. Then i have two options, i either rollover at the same strike of $23 and just keep holding the strike, which is the exact equivalent of buying $23 x 45000 shares, so basically it’s the poor man’s way of holding $1M in ewz shares with only $300k and yet not paying a dollar in interest because you never actually own ewz shares and you only own contracts that you keep rolling over and never letting them executing. You essentially keep buying back the current contract using money from a future contract (rollover trade) - and at the same time you are getting paid a time premium while holding and waiting for ewz to close above 23 and boom contract expires worthless. Option B is when the price approaches 23, so 24 for example, i just extend the time, drop the price to 22 or something and make it further unlikely to happen.

I didn’t explain this concept so well but there’s a seeking alpha article titled ‘the good, the bad, and the ugly of put selling’. It actually does a deep dive how using options to invest and holding the strike usually means a lower volatility and better outcome in a downmarket compared to holding the underlying.

 

[cyanide12345678]

Rad here. I’ve been researching real estate for the past 9 months and just dropped my first $150k into a syndication. First of many. If you spend some time looking into it, you’ll see how amazing real estate is. The tax benefits, cash flow, and appreciation. Good advice and experienced investors on this thread.

Good luck. Who did you go with as a sponsor? 150k is a solid chunk for a first time investment.

 

[cyanide12345678]

Exactly. I need more details. Being the insurance company is great until every policy holder makes a claim in the face of a large disaster. If you have a huge number of naked puts you've sold way out of the money, it is usually free money collecting the premium, until the market is down big and then your contracts are getting exercised. Most brokerages buffer against this risk. And even in the best case scenario, it is simply a poor rate of return on a huge amount of money at 300k, especially when you have to be able to cover all potential losses with balance in account.

Why are contracts being exercised? They exercise when you don’t know what you are doing. You can always buy back the contract using money from the puts that you sell from another contract further out in time and keep harvesting theta -aka time. You can just perpetually hold until the market recovers, keep collecting premium and in fact protect your downside.

If you’re so afraid of contracts being exercised then do options on RUT,spx and they can never be executed before the deadline (European style contracts with tax advantages).

And seriously, poor rate of return? Lolz… see attached screenshots for a potential order - 20k cash return in 5 months while using 66k of buying power cash (buying power drops from 196 to 130k) so 30 percent cash on cash return in 5 months while betting that something doesn’t drop 23 percent from current price. If it does, then you just hold the strike and keep collecting premiums until it goes above $22, which at some point of life it should since it’s an index of 50 companies with decent volatility.

 

[cyanide12345678]

Who are the sponsors you like?

I personally like ashcroft, nightingale, folger pratt, and ziffcre. Thoroughly impressed by them so far.

Least favorite sponsor so far was lynd, eventhough they are about to make me 30% IRR on my first full circle property. I’m just grumpy that i had to file for my tax extension because they didn’t deliver the k1 on time. For a company with 2B in AUM, at least get your tax documents together on time -_-

 

[cyanide12345678]

I am a ***** so excuse the newbie question, but are tax benefits better with direct ownership of properties vs. throwing in on a syndication?

Also in terms of strategy/ease is it better to create a portfolio of a lot of smaller units/doors, or perhaps focusing on a handful of higher-quality properties. Granted I assume the question comes down to personal preference, but I really want a hands-free (or minimal hands) approach to real estate investing.

I have the cash, I just don't know where to begin. I assume I am the dumb doctor investor so that already puts me at a disadvantage haha!

The tax benefits can be better with direct ownership IF you qualify for real estate professional tax status. Then you can take all your depreciation losses and count them against your income. The problem though is most doctors will not meet real estate professional status. You essentially need to put in some 1000 or so annual hours in real estate management/acquisition etc. And you cannot have another job where where you do more hours than your real estate (google the exact qualifications and criteria to meet this). This is the holy grail of real estate, if you achieve real estate professional status you can essentially keep buying more real estate, keep deferring taxes from previous properties from depreciation losses of new properties, and at some point you die, and based on current laws, your next of kin get a step up in basis, then no one ever pays any tax on any of that real estate. Plus not to mention how much income tax you can avoid by counting it against your income. So yeah… direct ownership tax benefits are better if and only if you can achieve real estate professional status. Most doctors don’t. The ones that do either leave their job or have spouses with lower income jobs that leave the job, who then manage the real estate portfolio, and get the preferential tax treatment for the family.

But if you don’t meet that special tax status then there’s not much of a difference. Minor differences, but nothing worth getting excited about.

If you have the cash, a diversified fund is a good start. Also, there’s a couple reasonable deals on crowdstreet right now. The davita dialysis portfolio seemed like a low risk low reward kind of a deal with decent cash flow in my 5 minute evaluation while i was at work lol. The Atlanta apt building next to emory hospital wasn’t that bad either. Decent options. I’m personally not investing in either though because I’m not diverting money out of my options account right now but i was definitely tempted to invest in these.

 

[ProReduction]

See my answer above. Not really as risky if you never let any contracts near expiration and expire.

One could argue that it’s maybe even less risky.

For example:

Ewz is currently $28.5. I can open 450 $23 strike contracts on ewz that would expire in 80 days lets say and get $25,000 in premium. That’s based on current premium from today. 8 percent return in 2.5 months, not terrible, I’m happy with it. Ewz currently has the lowest price to earnings ratio it has had in decades, lower than 2008. Its dividendYield is around 7 ish percent, and essentially is around 9 or so percent if it drops to $23. That dividend yield is going to give a solid floor aka support to the index price. For those 450 contracts, I’ll only use 2/3rd of my buying power and will have a 100k buying power. Also this leverage doesn’t cost a Penny in interest, it’s free leverage.

So 3 things can happen:

1) ewz goes up. My options value drops, instead of waiting 80 days, i buy back and close the position and open a new position somewhere else (like i closed 800 pins contracts today and opens my current holdings).

2) ewz goes down but does not drop 20 percent and stays above $23 in the next 2.5 months. Great option exires worthless. I made $25k - which makes it safer than buying the underlying which actually dropped slightly less than 20 percent.

3) ewz drops below $23. Then i have two options, i either rollover at the same strike of $23 and just keep holding the strike, which is the exact equivalent of buying $23 x 45000 shares, so basically it’s the poor man’s way of holding $1M in ewz shares with only $300k and yet not paying a dollar in interest because you never actually own ewz shares and you only own contracts that you keep rolling over and never letting them executing. You essentially keep buying back the current contract using money from a future contract (rollover trade) - and at the same time you are getting paid a time premium while holding and waiting for ewz to close above 23 and boom contract expires worthless. Option B is when the price approaches 23, so 24 for example, i just extend the time, drop the price to 22 or something and make it further unlikely to happen.

I didn’t explain this concept so well but there’s a seeking alpha article titled ‘the good, the bad, and the ugly of put selling’. It actually does a deep dive how using options to invest and holding the strike usually means a lower volatility and better outcome in a downmarket compared to holding the underlying.

I understand exactly how all of this works. Of course you can always buy back the puts if the underlying equity starts to tank. My two big questions were what you were selling as I assumed it had a high IV due to volatility, which it does. EWZ fit the bill. But also if you do not mind sharing, which brokerage do you use? They always assume worst-case scenario, being that the value of the underlying equity goes to zero. So with your 450 $23 strike puts you are looking at a worst-case potential loss of $1 million. You have said you can't cover that in your account. With Schwab, even with highest Level 3 options approval, you still have to have balance in account to cover worst-case potential losses. I only know this because I've tried to execute similar trades to what you do, admittedly at a smaller scale, in a subaccount of mine and the orders were cancelled for that very reason.

 

[cyanide12345678]

I understand exactly how all of this works. Of course you can always buy back the puts if the underlying equity starts to tank. My two big questions were what you were selling as I assumed it had a high IV due to volatility, which it does. EWZ fit the bill. But also if you do not mind sharing, which brokerage do you use? They always assume worst-case scenario, being that the value of the underlying equity goes to zero. So with your 450 $23 strike puts you are looking at a worst-case potential loss of $1 million. You have said you can't cover that in your account. With Schwab, even with highest Level 3 options approval, you still have to have balance in account to cover worst-case potential losses. I only know this because I've tried to execute similar trades to what you do, admittedly at a smaller scale, in a subaccount of mine and the orders were cancelled for that very reason.

If you are required to put in 1 million for a worst case potential loss, then your account is not enabled for naked contracts and you are essentially doing cash covered positions. I use etrade and at least in etrade you can go up to level 4 options trading account.

I changed my entire portfolio today. Bought back pypl and meta for 60 percent profit and 25 percent profit - not bad for a 1 day hold. And sold 610 ewz contracts for dec 30 2022 strike $22 for 65k of premium. Goal is to close the year with 50k in net profit for the year. Using 200k of buying power, have a safety margin of 110k of buying power remaining. See attached for current portfolio.

Your account is just not actually doing naked positions. In fact, despite only having $319k in my account today, i could purchase $640k of ewz with my margin account itself, but then I’m paying interest in margin, so I’m never going to do that. Why buy anything when you don’t have to?

An index is not going to 0. It contains some very profitable companies that are pumping out cash with very low price to earnings ratio.

Etrade requires between 10 to 17.5 percent of the money to cover a naked position depending on what it is and how far the strike is. Spy, qqq, rut, spx require only 10 percent for strike below 15 percent current strike which changes to 15 percent for strike less than 15 percent from current price. Ewz i believe requires only 17.5 or 15 percent, something like that. This number can change, but etrade does not make large changes for an ETF in margin maintenance requirement. Event during covid crash, this percentage margin maintenance requirement did not change. And covid crash was truly historic - 5-10 percent spy drops a day. They were fun to watch.

I have backup plans as well. Remember, as a 2 physician household, over the next 5 months the two of us will have 120k liquid extra cash. If ewz crashes, that’s an extra 120k buffer i can cash flow over 5 months. Secondly, if things really go to hell and $24 is breached, then i will buy back dec 30 22 contracts 22 strike with the premium of march 2023 strike 20. I lose 3 months of time, but the 3 months basically pay for the entire cost of dropping the strike to $20, and effectively then i only need $1.2M for a cash covered position then. While my account value is $319k right now, the cash in my account is actually $379k from the premium i received from ewz today. So between cash flow, dropping strike, cash from premiums for further out positions, i can very very easily manage this position. And if strike goes to $20, then i just hold and keep milking the high premiums and let the position recover, so essentially the equivalent of holding 1.2M in ewz while enjoying high premiums. This is going to make me a lot of money, i just need the appetite to be able to hold even if ewz drops significantly. I’m getting very very very good at holding large positions without flinching.

It’s really not that bad. Check back with me in 5 months, im fairly certain I’m ending the year positive. And i guess I’ll show you in 5 months time 🙂 see account holdings, balances, and current healthy margin maintenance excess in attachments. Officially down 3.5 percent YTD today. That’sa very very healthy margin maintenance excess buffer - so I’m leveraged, but really not that leveraged when i have 1/3rd of my buying power just sitting and waiting.

 

[ProReduction]

If you are required to put in 1 million for a worst case potential loss, then your account is not enabled for naked contracts and you are essentially doing cash covered positions. I use etrade and at least in etrade you can go up to level 4 options trading account.

I changed my entire portfolio today. Bought back pypl and meta for 60 percent profit and 25 percent profit - not bad for a 1 day hold. And sold 610 ewz contracts for dec 30 2022 strike $22 for 65k of premium. Goal is to close the year with 50k in net profit for the year. Using 200k of buying power, have a safety margin of 110k of buying power remaining. See attached for current portfolio.

Your account is just not actually doing naked positions. In fact, despite only having $317k in my account today, i could purchase $640k of ewz with my margin account itself, but then I’m paying interest in margin, so I’m never going to do that.

An index is not going to 0. It contains some very profitable companies that are pumping out cash with very low price to earnings ratio.

Etrade requires between 10 to 17.5 percent of the money to cover a naked position depending on what it is and how far the strike is. Spy, qqq, rut, spx require only 10 percent for strike below 15 percent current strike which changes to 15 percent for strike less than 15 percent from current price. Ewz i believe requires only 17.5 or 15 percent, something like that. This number can change, but etrade does not make large changes for an ETF. Event during covid crash, this percentage margin maintenance requirement did not change. And covid crash was truly historic - 5-10 percent spy drops a day. They were fun to watch.

I have backup plans as well. Remember, as a 2 physician household, over the next 5 months the two of us will have 120k liquid extra cash. If ewz crashes, that’s an extra 120k buffer i can cash flow over 5 months. Secondly, if things really go to hell and $24 is breached, then i will buy back dec 30 22 contracts 22 strike with the premium of march 2023 strike 20. I lose 3 months of time, but the 3 months basically pay for the entire cost of dropping the strike to $20, and effectively then i only need $1.2M for a cash covered position then. While my account value is $319k right now, the cash in my account is actually $379k from the premium i received from ewz today. So between cash flow, dropping strike, cash from premiums for further out positions, i can very very easily manage this position. And if strike goes to $20, then i just hold and keep milking the high premiums and let the position recover, so essentially the equivalent of holding 1.2M in ewz while enjoying high premiums. This is going to make me a lot of money, i just need the appetite to be able to hold even if ewz drops significantly. I’m getting very very very good at holding large positions without flinching.

It’s really not that bad. Check back with me in 5 months, im fairly certain I’m ending the year positive. And i guess I’ll show you in 5 months time 🙂 see account holdings, balances, and current healthy margin maintenance excess in attachments. Officially down 3.5 percent YTD today. That’sa very very healthy margin maintenance excess buffer - so I’m leverage, but really not that leverage when i have 1/3rd of my buying power just sitting and waiting.

Thanks. These are the details I needed. I need to check out Etrade. I agree that if you can cover the losses then it is really a naked put in-name only, but other brokers are much more rigid in this, treating it as naked if you do not own the underlying equity to see if contract is exercised. So if you do not own it, then you have to have cash in-account to cover all worst-case losses. I agree EWZ is never going to zero, but that is how some brokers calculate the cash you need in the account. As such, I assumed you were sitting on a ton of idle money that you were not able to put to work and was being held as cash to cover potential losses. Etrade is much more liberal with this. Sounds like I should create an account.

 

[cyanide12345678]

Thanks. These are the details I needed. I need to check out Etrade. I agree that if you can cover the losses then it is really a naked put in-name only, but other brokers are much more rigid in this, treating it as naked if you do not own the underlying equity to see if contract is exercised. So if you do not own it, then you have to have cash in-account to cover all worst-case losses. I agree EWZ is never going to zero, but that is how some brokers calculate the cash you need in the account. As such, I assumed you were sitting on a ton of idle money that you were not able to put to work and was being held as cash to cover potential losses. Etrade is much more liberal with this. Sounds like I should create an account.

Once you fill out a million forms, and if you truly unlock a fully leveraged level 4 account, it is incredible and very powerful. Your account is a cash covered positions only from what you are describing.

 

[HemorrhagicShock]

@cyanide12345678 Hey man I appreciate you taking the time to write that all out, give examples, screenshots, and do a step-by-step analysis.

How long did it take you to feel secure in taking such huge positions? Also how long did it take you to learn all of this in general? Were you into financial instruments, syndications, options/derivatives etc. all before medical school? Or is this something you just recently taught yourself?

I've been reading these options and syndication posts over and over, and it just doesn't stick. It's so foreign to me. Maybe the approach is just to try and invest in a syndication through crowdstreet and register an options account and simply trade 1 contract until I start to understand the basics. I assume I'll lose all this money, but perhaps I can chalk it up to "market tuition."

I just don't see how I'll learn and/or get good at any of this simply by reading how-to's. I think I just need to dive in, make my own mistakes and hope for the best.

 

[forchinet121]

@cyanide12345678 Hey man I appreciate you taking the time to write that all out, give examples, screenshots, and do a step-by-step analysis.

How long did it take you to feel secure in taking such huge positions? Also how long did it take you to learn all of this in general? Were you into financial instruments, syndications, options/derivatives etc. all before medical school? Or is this something you just recently taught yourself?

I've been reading these options and syndication posts over and over, and it just doesn't stick. It's so foreign to me. Maybe the approach is just to try and invest in a syndication through crowdstreet and register an options account and simply trade 1 contract until I start to understand the basics. I assume I'll lose all this money, but perhaps I can chalk it up to "market tuition."

I just don't see how I'll learn and/or get good at any of this simply by reading how-to's. I think I just need to dive in, make my own mistakes and hope for the best.

Do you have a dual physician household likely making over 700k per year? If not I would certainly not be following his strategy of gambling and day trading. He can afford to do this because he has excess money to play with, this is not a luxury most of us have..

 

[HemorrhagicShock]

Unfortunately no. My wife works part-time, I have a kid, but I am lucky in that I have less than 20k in debt and have already saved about 750k (retirement + brokerage + real estate + cash)

 

[ProReduction]

Cyanide my initial confusion was in how you explained your strategy, although I understand it was a huge simplification as your post was not supposed to be about options. In my experience, premium harvesting exclusively refers to holding an out-of-the-money contract to the expiration date and pocketing the small to modest premium. I do it all the time for covered calls. You are definitely doing much more than that and are actively buying and selling puts, appropriately so. But I am sure how you can see how the initial read was how I interpreted it with the limited details.

To HemorrhagicShock: "Understanding Options" by Michael Sincere is a great intro. You should not and will not jump into Level 4 options trading with super complicated strategies. Cyanide will tell you he/she started with more basic strategies and worked-up to naked puts. Start slow like you said with a contract here and there.

 

[emergentmd]

I would recommend jumping into RE syndication and options after some reading then just doing it. There is no way to truly understand unless you see the outcomes. I have lost a good amount learning but I look at is as the cost of an education.

If I knew 20 yrs ago, what I know now, I be FIRE x 5 right now.

 

[cyanide12345678]

Do you have a dual physician household likely making over 700k per year? If not I would certainly not be following his strategy of gambling and day trading. He can afford to do this because he has excess money to play with, this is not a luxury most of us have..

I’ve tried educating people a lot.

Now educate me in detail please, rather than a one liner statement without any substance. What exactly am i gambling when my worst case scenario is holding a diversified ETF of 50 companies, in multiple sectors, most of whom are considered value companies with high cash flows and current price to earnings ratio of around 5, which is in fact lower than the nadir in 2008. And this is based on current price of $28.5. Current dividend yield around 11 percent, which may change, but the commodity heavy companies are printing money today.

Here is my worst case: i drop strike to $20. And i hold ~600 contracts at that price of $20 ($1.2M if cash covered), which is 30 percent below todays price which a lot of people would already consider excellent value. Based on current etrade rules for naked put positions on ewz, i will require 15% of $1.2M (180k) plus the value of premium which is currently $65k (current value changes depending on what the underlying etf price/volatility is).

So let’s say my 65k premium gets a negative 300% paper loss, which requires an absolutely massive drop, then i need 180k plus 195k in cash in the account which is 375k to avoid a margin call. The account already has that (look at cash balance above in posted screenshots). And then i can cash flow more money from cash savings and income to bolster the Margin maintenance. Or let’s say i can’t, i can take a loss on 50 contracts (so 10k loss), close them, drop my capital requirement if needed while maintain a long term outcome on the remaining 550 contracts. Then i just hold that $20 strike price and keep collecting roughly thousands in premium until ewz goes above $20 and contracts expire worthless.

It’s not gambling. It’s educated investing, just like you are investing in spy or vti or voo.

I have a family and a child and responsibilities and believe it or not I’m fairly risk adverse.

So how am i gambling?

 

[cyanide12345678]

Cyanide my initial confusion was in how you explained your strategy, although I understand it was a huge simplification as your post was not supposed to be about options. In my experience, premium harvesting exclusively refers to holding an out-of-the-money contract to the expiration date and pocketing the small to modest premium. I do it all the time for covered calls. You are definitely doing much more than that and are actively buying and selling puts, appropriately so. But I am sure how you can see how the initial read was how I interpreted it with the limited details.

To HemorrhagicShock: "Understanding Options" by Michael Sincere is a great intro. You should not and will not jump into Level 4 options trading with super complicated strategies. Cyanide will tell you he/she started with more basic strategies and worked-up to naked puts. Start slow like you said with a contract here and there.

If you are holding till expiration then you are doing it wrong. Options are meant to buy and sell and never wait till expiration. Watch tastytrade YouTube videos. YOU NEVER HOLD TILL EXPIRATION. That’s literally rule no. 1.

 

[cyanide12345678]

@cyanide12345678 Hey man I appreciate you taking the time to write that all out, give examples, screenshots, and do a step-by-step analysis.

How long did it take you to feel secure in taking such huge positions? Also how long did it take you to learn all of this in general? Were you into financial instruments, syndications, options/derivatives etc. all before medical school? Or is this something you just recently taught yourself?

I've been reading these options and syndication posts over and over, and it just doesn't stick. It's so foreign to me. Maybe the approach is just to try and invest in a syndication through crowdstreet and register an options account and simply trade 1 contract until I start to understand the basics. I assume I'll lose all this money, but perhaps I can chalk it up to "market tuition."

I just don't see how I'll learn and/or get good at any of this simply by reading how-to's. I think I just need to dive in, make my own mistakes and hope for the best.

2 years trading options now. So not that long.

My true financial education began pgy2 when i read dozens and dozens of books on investing and real estate as a preparation for the time when i have money aka becoming an attending. Literally wiped out the finance section in my local library and read every book. I developed my perfect 90:10 stock to bond portfolio with 60% US and 40% foreign stocks and a 20 percent small cap tilt based on research - then one day on the Fb group of WCI i read a guy talking about selling puts - decided to educate myself on it, then slowly got more and more into it. The people who are good at this are usual selling strangles. Then i binged hours and hours and hours of youtube - tastytrade and just started doing it. Now my taxable account is 100% options. My goal is to beat my 2055 vanguard target retirement fund - currently beating it by 12 or so percent YTD.

Edit: it took 1.5 years to be comfortable with positions this big and concentrated. Started off with puts on Spy In a very limited way. A good way to start is to sell covered calls if you own 100 shares of any particular stock and if there’s a price point you will be happy to sell those shares at.

 

[doctalaughs]

As a doc you can always have a large amount of wealth when you approach your 50's. We all can keep working and just shoving it into a S&P but my goal is to generate cash flow so I will never touch my estate. Also, when you give kids 2M in property and show them that they can live off the income generated, it is much more powerful than giving them $2M IRA that many will just buy something dumb.

Hmm I might disagree with that. No different than a well structured trust with 2M or 5M in it, which is quite easy to do whether you have real estate, stocks or whatever.

 

[ProReduction]

If you are holding till expiration then you are doing it wrong. Options are meant to buy and sell and never wait till expiration. Watch tastytrade YouTube videos. YOU NEVER HOLD TILL EXPIRATION. That’s literally rule no. 1.

This is incorrect. One of the most basic options trades is selling a covered call out-of-the-money. The value is exactly zero if the contract is not exercised on expiration. If you buy back the call option that you sold at any point before that, then you are paying more than zero. So you either have your original premium - cost to buy contract back OR you have your original premium - zero. The latter is obviously more.

What you are probably thinking is that you take a loss and buy back your call option to move that money to out-of-the-money calls with future expirations dates. This is not the same thing as this is entering another trade into the scenario. When looking at the original single covered call sale, holding to expiration maximizes profit.

 

[cyanide12345678]

Net worth about 2.5M, real estate just under half of that. I was aiming for 30% RE but real estate has done really well while stocks got blasted this year so my asset allocation is off. Got lucky with school costs. Med school had good financial aid, I got a few merit based scholarships and even did some part time work during school. Also during third year an anonymous donor paid 50% of everyone’s tuition. Much appreciated. Ended up graduating with about 17k in debt that I paid off in the first few years of residency. I have been working hard, hustling and saving a lot. Generally living like a resident with a few splurges like a nicer car along the way. My wife is a dentist but works in public health, low 100k for most of our relationship but she just got PSLF for massive loans which we are very excited about. Her NW makes up about 500k of the 2.5M for us.

I do admin, work a ton, and have a really good group of sites with high hourly so it all comes together for very good comp at least over the last 2+ years at full partner. Before that was pretty average. So I feel lucky and am doing well. My goal is for us to hit 3M in NW by early next year with about 75-80k in passive income from real estate which I would consider FI and then I want to cut back to a more normal schedule. I keep feeling like the sky is going to fall in EM or the house of medicine overall but it hasn’t happened so honestly, after all the hustle I kind of wish I had taken a bit of a more balanced approach the last few years. maybe with a few good vacations I’ll be ready to head back into the grind longer term.

Do you mind sharing details on who your sponsors are, which sponsors you like, which ones you will stay away from? Seems like you have a bunch of experience in this space.

 

[cyanide12345678]

This is incorrect. One of the most basic options trades is selling a covered call out-of-the-money. The value is exactly zero if the contract is not exercised on expiration. If you buy back the call option that you sold at any point before that, then you are paying more than zero. So you either have your original premium - cost to buy contract back OR you have your original premium - zero. The latter is obviously more.

What you are probably thinking is that you take a loss and buy back your call option to move that money to out-of-the-money calls with future expirations dates. This is not the same thing as this is entering another trade into the scenario. When looking at the original single covered call sale, holding to expiration maximizes profit.

No. Lets say tomorrow you sold a covered call on Meta, 45 days until expiration, and you received $100 premium. Meta drops 10% day after tomorrow. Now it's a lot more unlikely that your covered call will execute, so your covered call premium is now only $50. So, now you can wait 44 days for the remaining $50 left in the deal, or you can take the $50 and execute another trade. Perhaps start a new contract with a lower strike.

You can't just switch positions to another stock or ETF with a covered call, but obviously with naked puts since I don't hold anything, i can just switch around different ETFs or stocks. But you're being very inefficient with your capital if you wait till expiration.

For example, I closed my Pypl position in 1 day yesterday. Why? Paypal jumped up 13%, and the premium had already dropped 60% (so if I had received 100 dollars, the option premium was now worth 40 dollars). I could have waited another 80 days to milk the remaining $40, but that's not efficient theta harvesting, instead, I took my 60% profit in 1 day and moved it into something that was negative that day (EWZ was negative and hence opened a large EWZ position - negative EWZ day meant higher put premiums).

I harvest theta. When most of the value has been squeezed, it is inefficient to squeeze the last dollar out, my capital is better off elsewhere.

 

[cyanide12345678]

This is incorrect. One of the most basic options trades is selling a covered call out-of-the-money. The value is exactly zero if the contract is not exercised on expiration. If you buy back the call option that you sold at any point before that, then you are paying more than zero. So you either have your original premium - cost to buy contract back OR you have your original premium - zero. The latter is obviously more.

What you are probably thinking is that you take a loss and buy back your call option to move that money to out-of-the-money calls with future expirations dates. This is not the same thing as this is entering another trade into the scenario. When looking at the original single covered call sale, holding to expiration maximizes profit.

Here's an example that is less hypothetical and based on concrete numbers and using some fancy Etrade tools.

I sold 610 contracts for Dec 30th 2022 EWZ strike price $22 for $106 on average per contract. I received ~$65k in premium for this. Current EWZ price is $28.5. This contract expires 5 months from now. Lets say in 2 months EWZ is $31 - So specifically on October 3rd 2022 EWZ is $31.

See attached spectral analysis tool that estimates the premium/profit/loss with a particular Implied volatility for any future date and price.

So, if EWZ is $31 on October 3rd 2022, my position is worth 77% less than what someone paid me for it. Meaning, I have already achieved $50k of the profit in 2 months. So, I can either wait 3 more months to squeeze the remaining 15k of premium left in the position, which is inefficient theta harvesting and inefficient use of capital. Or I can cash out, "buy back" all 610 contracts and be happy with 50k of profit in 2 months, meaning I'll be the guy paying someone the premium (in this case $15k). Then I just use my capital elsewhere in a more efficient way where 3 months gets me more than $15k.

So yeah... Letting an option go all the way to expiry is inefficient. It is not the way to actually do it. Tastytrade is full of people who do this for a living - almost everyone buys back at 50% profit and re-deploys capital elsewhere. Technically hard to redeploy capital elsewhere in a covered call I guess, but still can create a new trade with new parameters based on what the underlying does.

 

[ProReduction]

No. Lets say tomorrow you sold a covered call on Meta, 45 days until expiration, and you received $100 premium. Meta drops 10% day after tomorrow. Now it's a lot more unlikely that your covered call will execute, so your covered call premium is now only $50. So, now you can wait 44 days for the remaining $50 left in the deal, or you can take the $50 and execute another trade. Perhaps start a new contract with a lower strike.

You can't just switch positions to another stock or ETF with a covered call, but obviously with naked puts since I don't hold anything, i can just switch around different ETFs or stocks. But you're being very inefficient with your capital if you wait till expiration.

For example, I closed my Pypl position in 1 day yesterday. Why? Paypal jumped up 13%, and the premium had already dropped 60% (so if I had received 100 dollars, the option premium was now worth 40 dollars). I could have waited another 80 days to milk the remaining $40, but that's not efficient theta harvesting, instead, I took my 60% profit in 1 day and moved it into something that was negative that day (EWZ was negative and hence opened a large EWZ position - negative EWZ day meant higher put premiums).

I harvest theta. When most of the value has been squeezed, it is inefficient to squeeze the last dollar out, my capital is better off elsewhere.

You just made my point exactly. If you hold until expiration, you pocket the entire premium of $100. If you sell on day 1 after Meta drops then you only pocket $50. Whatever you do with that $50 is irrelevant to the initial trade. $100 is still greater than $50. What you are actually arguing is that $100 at expiration in 44 days is not worth holding-up the additional $50 you will make if you hold for another 44 days vs putting that $50 to work elsewhere now. However, you can't argue that a covered call is ever worth less than it is at expiration.
I agree with everything you say about holding covered calls not being efficient theta harvesting, but you can't argue the math on an individual trade. It is a novice trade for sure. Something you can set-and-forget.

I am not saying that holding a covered call until expiration is the way to make the most money in options trading in general. I am saying that holding a covered call until expiration is the way to maximize your profit on that individual option trade. They are two completely different issues.

 

[AD04]

Here's an example that is less hypothetical and based on concrete numbers and using some fancy Etrade tools.

I sold 610 contracts for Dec 30th 2022 EWZ strike price $22 for $106 on average per contract. I received ~$65k in premium for this. Current EWZ price is $28.5. This contract expires 5 months from now. Lets say in 2 months EWZ is $31 - So specifically on October 3rd 2022 EWZ is $31.

See attached spectral analysis tool that estimates the premium/profit/loss with a particular Implied volatility for any future date and price.

So, if EWZ is $31 on October 3rd 2022, my position is worth 77% less than what someone paid me for it. Meaning, I have already achieved $50k of the profit in 2 months. So, I can either wait 3 more months to squeeze the remaining 15k of premium left in the position, which is inefficient theta harvesting and inefficient use of capital. Or I can cash out, "buy back" all 610 contracts and be happy with 50k of profit in 2 months, meaning I'll be the guy paying someone the premium (in this case $15k). Then I just use my capital elsewhere in a more efficient way where 3 months gets me more than $15k.

So yeah... Letting an option go all the way to expiry is inefficient. It is not the way to actually do it. Tastytrade is full of people who do this for a living - almost everyone buys back at 50% profit and re-deploys capital elsewhere. Technically hard to redeploy capital elsewhere in a covered call I guess, but still can create a new trade with new parameters based on what the underlying does.

Thanks for explaining how you take profits. More important, I would be interested in how you take losses. You're applying lots of leverage through options so what if prices keep going down and the puts you sold are worth more. Do you buy back at a loss? Because if you keep sitting on them, you can lose even more with gamma and implied volatility increase without have the price of the underlying to be lower than strike price. Or are you going to sit on the option until expiration? When losses happen, they happen big. Wasn't it OptionSellers that went broke and lost over 100% of their client's money through strangles?

 

[cyanide12345678]

Thanks for explaining how you take profits. More important, I would be interested in how you take losses. You're applying lots of leverage through options so what if prices keep going down and the puts you sold are worth more. Do you buy back at a loss? Because if you keep sitting on them, you can lose even more with gamma and implied volatility increase without have the price of the underlying to be lower than strike price. Or are you going to sit on the option until expiration? When losses happen, they happen big. Wasn't it OptionSellers that went broke and lost over 100% of their client's money through strangles?

I took 2 very big losses on arkk and arkf this year. My account is negative only because of those 2 positions. Between the two i took a 60k loss, essentially went in and saw multiple days of 10+ percent declines in the ETFs. It was an ETF!! It was ridiculous - spy would drop 1-2 percent and arkk would drop 8-12 percent. I Dropped strikes, extended trades, briought arkk strike to as low as 35. Theoretically i could have just held that price. Arkf was at $10 strike. Again something i could have held, the underlying prices never got within 15-20 percent of my strikes as i kept managing the positions. When i started the positions i was comfortable with just holding and watching the position recover. I was never pressured by being too leveraged and always maintained a healthy maintenance margin. But because of those two positions, i went from positive 4% to negative 15-20 percent, and then i was where the SPY was on a YTD basis. I was beating spy by almost 20 percent prior to that. And it bothered me losing my 20 percent advantage over spy so i essentially walked out with a plan to go back to my strategy that always worked - 45 to 60 day puts on things like ewz, rut, qqq. Im back to deviating again as i opened a 5 month long position, but this one I’m probably not going to fold regardless of what happens.

I also eventually sold the positions because i went through the income statements of all the major holdings of arkk and arkf. Most of these companies were on shaky grounds financially, massive losses, barely any income, massive debt, ridiculous price to earnings ratios. I didn’t have an exact formula for taking the loss, i just looked at the opportunity cost and decided to move and make my portfolio safer. While i probably would have done better today had i just held those positions, but it did make me nervous at some point and i began preparing for nasdaq dropping to pre-covid high levels as a bounce for support, which meant a further 15-20 percent decline in qqq, which probably would have been devastating for ARKK/arkf. It never happened, so holding would have turned out great, but i didn’t have a crystal ball. I probably would have been 10 percent positive YTD instead of 3 percent negative ytd right now if i had held.

So yeah…i don’t really have a formula. Though every trade i make, i have the ability to hold perpetually if needed - i just lost faith in the companies that were within arkk and arkf after seeing the balance sheets and income statements. A loss should not hold you down, it’s a sunk cost. Put your capital towards winning trades instead rather than hope a loser becomes a winner.

Also strangles scare me. I don’t do them, I’ve done a couple, but they don’t sit right with me from a risk perspective. People also swear by iron condors, i did one once and quickly realized how having an iron condor takes away the flexibility of a naked put position. Just the idea of naked calls scares me. With a naked put, as long as you can bring in enough capital to prevent a capital call, you can hold perpetually, which is then the same as holding a stock position except better - you keep getting paid a premium to wait for the position to recover. With a naked call, if you keep extending time, and the underlying keeps going up and up, you are only creating a bigger hole.

I’m attaching two screenshots - one shows what a rollover hold would look like (keeping the same strike and extending time), the other shows a very defensive move of dropping the strike using premium from an option further out.

So you dont wait till expiration because then you have risk of being allotted the shares. You just change the terms of your holdings essentially and swap out one contract for the other.

In the Rollover hold trade in the attached example - I’m getting paid another 19k for extending my position by 3 months. If my margin maintenance was very healthy with no concern for margin calls, and i didn’t mind waiting for the stock to recover, this is a great way to be paid to wait.

In the rollover drop strike trade, a very defensive trade that I’ve done very very frequently, I’ve attached two examples - i can take a 5k hit and extend the option by 3 months and mostly pay for the drop in price with the new premium (except 5k). So essentially be the sleazy insurance man who changes the terms of the deal. Or if i always want to do a positive trade, i can extend it by 6 months and take 28k more premium, extend the contract by 6 months, drop the strike to 20 from 22. These trades drop your margin maintenance requirements, open up liquidity, and they make it even more unlikely that the strike price will execute. It’s a great trade to de-risk.

So yeah a loss can be managed. The biggest assumption you are making is that the underlying does not go to 0, if it doesn’t, you can keep getting premium until it recovers. If the underlying goes bankrupt and goes to 0, then you’re actually screwed - but etfs tend not to go to 0 usually.

 

[ForGoodLuck]

So what happens when you end up like 60 percent of ER doctors and get burned out? Heck most of us come out of residency burned out. When you realize that your career has a shelf life, all of a sudden 100k per year isn’t enough to grow enough of a nest egg to walk away comfortably. Also you speak as though you don’t have much debt or expenses. Wait till you have a family to feed, bills to pay, a mortgage to take care of, and childcare expenses 😉 life changes. I also lived on $1000-1200 per month when i was a third year in medical school. 100k sure seemed like a lot then. Have a kid or two and then we’ll talk 😉

I have a kid or two, I've paid plenty of bills, and I've got plenty of debt. I know the value of money and have a realistic idea of my risk tolerance and how much the future I want is going to cost. I understand that my idea of "comfortable" would probably not be comfortable for you, and I guess that's why you're assuming I just don't know better? I'm not sure if the idea of living off of <100k and putting the rest to investments is getting lost in translation.

 

[PianoMedic]

@cyanide12345678 Hey man I appreciate you taking the time to write that all out, give examples, screenshots, and do a step-by-step analysis.

How long did it take you to feel secure in taking such huge positions? Also how long did it take you to learn all of this in general? Were you into financial instruments, syndications, options/derivatives etc. all before medical school? Or is this something you just recently taught yourself?

I've been reading these options and syndication posts over and over, and it just doesn't stick. It's so foreign to me. Maybe the approach is just to try and invest in a syndication through crowdstreet and register an options account and simply trade 1 contract until I start to understand the basics. I assume I'll lose all this money, but perhaps I can chalk it up to "market tuition."

I just don't see how I'll learn and/or get good at any of this simply by reading how-to's. I think I just need to dive in, make my own mistakes and hope for the best.

You can make something called a “paper money” account through TD Ameritrade which lets you use fake money in the real world. You can try out a strategy you are considering and see how it tests out before committing any money to it. I believe you have to apply for a real options account to be able to trade options and futures in it, but it can be done. I personally managed to blow up my version of that account and haven’t looked at it in 6 months. You can reset it at least once, I believe you can reset it many times, but I’ve been too lazy to do that yet.

 

[HemorrhagicShock]

You can make something called a “paper money” account through TD Ameritrade which lets you use fake money in the real world. You can try out a strategy you are considering and see how it tests out before committing any money to it. I believe you have to apply for a real options account to be able to trade options and futures in it, but it can be done. I personally managed to blow up my version of that account and haven’t looked at it in 6 months. You can reset it at least once, I believe you can reset it many times, but I’ve been too lazy to do that yet.

Oh yea I gave paper trading its go earlier on in my career, and then with actual money, but I was only swinging shares, and not options or futures. That turned out not so well purely because I realized the incredible amount of time one needed to become consistent. Just not possible with a new baby, a wife, a mortgage, full-time work, and all the circadian switches. Being ready at pre-market around 5:30am (I'm PNW) in order to research and prep for market open was pretty difficult with all oft-cited Birdstrike-ian circadian dysthymia.

The problem I saw with paper trading was the psychological lack of connection to the outcome. Sure, outcome independence is good when it comes to learning a trading strategy, but at least for me, I needed just enough fear/loss aversion to keep my mind in the trade and to stick to the plan outlined before I took the trade.

Ultimately you bring up a good point because I still don't know the technical aspects of trading options, so paper trading would be perfect. Time to fire up the ol' Think-or-Swim!!

 

[cyanide12345678]

Oh yea I gave paper trading its go earlier on in my career, and then with actual money, but I was only swinging shares, and not options or futures. That turned out not so well purely because I realized the incredible amount of time one needed to become consistent. Just not possible with a new baby, a wife, a mortgage, full-time work, and all the circadian switches. Being ready at pre-market around 5:30am (I'm PNW) in order to research and prep for market open was pretty difficult with all oft-cited Birdstrike-ian circadian dysthymia.

The problem I saw with paper trading was the psychological lack of connection to the outcome. Sure, outcome independence is good when it comes to learning a trading strategy, but at least for me, I needed just enough fear/loss aversion to keep my mind in the trade and to stick to the plan outlined before I took the trade.

Ultimately you bring up a good point because I still don't know the technical aspects of trading options, so paper trading would be perfect. Time to fire up the ol' Think-or-Swim!!

Is there something you want to own? Spy? Iwm? Ewz? Pypl? Meta? Aapl? Amzn? Something?

Instead of outright buying 100 shares, set aside 100 percent of the money for 100 shares and sell a covered put 3-5 or whatever percent below the current price. If it never hits the strike price, great you just made a premium and made a profitable trade. If it drops below the strike point and option executes, great you bought the stock at a 3-5 percent discount compared to the price you were otherwise going to pay for the stock when you were going to buy it anyway, plus you got premium on top. Win win trade in every way. You can’t lose.

As long as you don’t start thinking ‘omg now it’s 90 dollars and my strike is 95 dollars - I’ll be buying something for 95 dollars that’s worth 90’. Instead think of it like ‘i was going to buy it for 100 dollars and instead of it dropping 10 percent to 90 dollars, I’m acquiring it for 95 dollars and getting a premium on top which really protected my downside significantly’. See what i mean?

Or if the stock goes to 110 and your option never executes, don’t be the guy that thinks man i could have made 10%. Be the guy that thinks ‘i made the premium as profit’

Cash covered put is a defensive strategy - decreases downside and limits upside to the premium. It is always safer than owning a stock but limits upside.

It’s a good way to start.

 

[cyanide12345678]

Check back with me in 5 months, im fairly certain I’m ending the year positive. And i guess I’ll show you in 5 months time 🙂

I guess I'm quoting myself from 5 months ago to give an update to anyone who cares. Maybe this might inspire others to learn to take control of their portfolio themselves.

I literally shared my positions and my trades and that I was anticipating ending the year positive. Answered a bunch of skeptical folks and had my portfolio positions available for anyone to see and I believe I was anticipating/aiming for ending the year 50-60k positive.

Well...5 months later. How did I do?

August of 2022, when this thread was originally created, my account was negative 3.5 percent (10k negative) vs SPY that was negative 13%. I was beating SPY by 10% and I was pretty stoked about that.

Dec 29th, 2022 - SPY is 19.73% negative YTD. The market has continued to slip. I'm up YTD $72393 now (essentially a positive 82k swing in 4-5 months - doing the trades I shared publicly here with everyone). I'm up 17.5% YTD, see below for proof. Which means I'm ending the year beating SPY by 37%.



My current portfolio - I'm again attaching a screenshot from my current portfolio - the EWZ position is the big one, the other positions are just temporary, small, and just there to add an extra 1-2 percent total return and are minimal risk positions. They really don't matter, and these smaller positions will be closed once 30-40% profit is achieved. The EWZ position will likely be held for 366+ days for long term capital gains since the tax difference between long term capital gain vs short term capital gain alone will be 45k on that position (total $219k premium and profit if that position expires worthless). And this one position is 95% of the portfolio essentially.



Why I'm bullish on EWZ - Very high premiums, lowest price to earnings ratio in history, cash cow brazilian stocks making A LOT of money, literally 12-13% dividend right now; stock mostly taken a beating due to political instability. EWZ price to earnings is far below of EEM (emerging market peers) and their dividend is so high because of being so damn under valued. Now take something that's already undervalued and sell puts on a strike price that is essentially the lowest price point in many many years, then you're getting into "excellent return while very reasonable risk" territory.

Plan for 2023 - Hold current EWZ position to 366+ days and close to expiration (January 2024 is expiration for current position). This should net my account 160k in just slightly over a year as long as EWZ stays above $22 (todays closing price 28.16). That's a 33% return for 2023. If EWZ drops below $22, then I keep rolling my options in time, keep collecting premium, and wait for EWZ to recover above 22, and when that happens my options expire worthless and I walk away with massive premiums.

My biggest winners and losers - I'm attaching a screenshot of my biggest winners and losers for the year as well. Not every trade went accordingly so I think that transparency is important too. I'm learning to stick with my winners more and more and be more disciplined in that regard.



Net worth trajectory - Looking back it's kind of amazing to see where I've come from. 3.5 years ago I was worth negative 80-100k when I graduated residency. In only 3.5 years I'm ending 2022 at 1.27M. 2 more years, I think we will be FI if we continue this trajectory, so age 36.



Lastly, I'm not a financial advisor or anything, just a guy passionate about personal finance who reads financial information for fun and entertainment, so this isn't financial advice, just an encouragement to read, learn and take control of your portfolio. I have nothing to gain or sell here, I just truly enjoy talking about this stuff (in real life and the internet). I have had dozens of folks send DMs regarding this stuff, so there are people who are interested in this stuff and have benefited from these conversations. So this post is for those people. If you don't like to read this, or are tired of these topics, or don't find value in this, that's fine, it's not for everyone. And seriously, don't ever hold large positions unless you really really really know what you are doing. I hope there was some value in this post to anyone that cares. Good luck everyone.

 

[emperor tamarin]

I've enjoyed reading this thread and appreciate that cyanide posts updates. I'm fairly financially savvy and haven't felt I have the time or aptitude to jump into either of these although the fomo is real.
That said, with a single physician salary, using a standard buy and hold stocks and bonds portfolio and aggressive saving, our portfolio/NW trajectory isnt that different from the one cyanide describes. We hit the 1mil at about 3 years out, 1.1 at 4 years now due to having a kid and the market downturn (children are very expensive).

The leverage aspect will eventually juice the returns for cyanide for sure, and it seems he has the knowledge/skills to avoid excessive risk associated with going on leverage. This is not for everyone or even most MDs in my experience. It's not because they are too dumb to learn, but simply bc most of my colleagues at least lack the aptitude for this.

Anyways mostly started this post to encourage continued updates from the OP, kudos to you