Welcome to Part 7 of this multi-part series of blogs, where I will teach you why we trade on the US market, which presents a better way to invest in the stock market.
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If you have missed previous parts, please click on one of the links below to read it:
Read Part 1
Read Part 2
Read Part 3
Read Part 4
Read Part 5
Read Part 6
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In Part 6, we shared the Fokas stock investment strategy with you. We are going to dive deeper into it in this blog.
Why We Trade On The US Market
When it comes to this strategy, I don’t want to rely on anybody else but myself. I don’t want to rely on fund managers. I don’t want to rely on brokers. I don’t want to rely on computer systems. I want to rely on myself. Here are some of the reasons we trade on the US market rather than the Australian stock exchange:
- There are just over 3,000 optionable stocks that we choose from on the US stock market. Australia has just over 76, of which only a dozen or so are worth considering.
- A $20 dollar stock with 100 shares as a minimum would require a $2,000 investment. 100 shares equals 1 contract, these are monthly contracts. Australian brokers usually insist on a minimum account balance of $20,000, so you can begin making money for less on the US stock market with $2,000 – $5,000 USD as opposed to $20,000 AUD.
- The US market is the prime driver of all global markets. Remember our ethos of ‘creating the market’, not reacting to it.
- Our members have virtual accounts opened on average in 15 minutes and we start paper/virtual trading to show them the process and to see the income in the account the next trading day without the need to put real money into the markets. It simply is not that quick and easy in Australia where it can take literally weeks to set up an account.
- The US markets trade 12 months of the year compared to, effectively, just eight to ten months in Australia due to low liquidity.
- You can’t always find an option buyer on the Australian market, whereas the US market is always awash with them when it comes to options traders. Remember an average of 30 million contracts traded per day.
- Brokerage in Australia ranges from an average of $40 to $130 per transaction minimum. In the US it is $15 for stock and $10 for option per transaction minimum.
- With returns of 2% to 4% a month, the US market outperforms the 1% to 2% average of the Australian market.
- A $30 stock requires a $3,000 USD investment on the US market. It’s clearly a better starting point for us to discover the benefits and build a solid foundation for us. It’s about building confidence in each member before moving to the next level.
We can create contracts every month, so we have an income 12 months per year if we want to. It takes 15 minutes to set up an account, and as mentioned, the brokerage fees are lower. You have a choice of which brokerage firm you want to use to implement this strategy.
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You Can Also Learn This Strategy by Attending the “Smart Money” Online Masterclass for Free, Where We Will Dive Deeper into the Reasons Why We Trade on the US Market.
I Know, You Want To Know More!
If you are still with me then I know you want to know more so let’s look at some recent examples of contracts written on the US stock market. These figures were current at the time of writing and of course, are purely an example to give you a better idea of the whole concept of covered calls and how they work. If you attend one of my Masterclasses I run live and online, you will see live current market examples.
Unlike some of those ‘Make A Fortune On The Stock Market’ ‘squeeze pages’ you find yourself surfing into on the internet, their examples are indicative of average trades. When I present this information at events around the world I use real-time data from the stock market website so people can see for themselves actual data from the market. This, of course, adds a lot of impact and credibility but it is not something I can replicate in a blog; but feel free to do your own research.
Never forget, a return is better than no return and you can’t go broke making a profit.
Even if you do prefer the ten or so choices the ASX offers, this method will still work.
Let’s take a look at the US market and see the difference in returns for the same time and effort. Remember, 100 stocks (we say shares, the Americans use ‘stocks’ but they mean the same thing) is the minimum on the U.S. market as it is on the Australian market, however, many Australian brokerage firms will not allow you to buy a minimum of 100 as their fees will eat into your profit. In the U.S. the fees are small and therefore, we can start with less.
We need to purchase a minimum of 100 shares of XYZ, which is currently selling for $35.32. So 100 times $35.32 is $3,532. That would be your minimum investment in the US stock market.
We purchase our shares in lots of 100 so if we have $8,000 in the account, we could purchase 200 shares. With 200 shares or 2 contracts, our capital investment would be $35.32 x 200 = $7,064.00. Our return or income would also double compared to buying just one contract, or 100 shares and the best part is, the brokerage stays the same.
Let’s compare our return with the Australian market, you will see the difference and why we prefer to invest in the US market.
$35K – Better Invested on the Dow, or in BHP?
Let’s look at two examples from real life at the time of me writing this. BHP on the Australian market and Delta Airlines on the US market. Now, this is not a recommendation for you to go out and buy any one of these stocks. I want you to see what the difference is right now on two quality blue-chip stocks.
Australian Market example
If we purchased 1000 shares on the Australian market using BHP at $48.34, our investment would be $48,340. We write a contract for an Agreed Price (Strike) of $48.50. Our buyer agrees to pay $0.75 per share for this Option contract.
We received $750.00 income upfront before brokerage.
Brokerage for this example let’s say is $40 per transaction. To buy the stock is one transaction, to write the contract and create this for the stock market is another transaction. $40 x 2 = $80.
If our income is $750 and the brokerage is $80, then our net return is $670.
$670 / $48,340 x 100 = 1.38% Return on Investment for 4 weeks.
US Market example
If we purchased 1000 shares on the US market at $42.40, our investment would be $42,400 USD. We write a contract for an Agreed Price (Strike) of $43.00. Our buyer agrees to pay $1.94 per share for this Option contract.
We received $1,940 income upfront before brokerage costs.
Brokerage is a minimum of $15 to buy the stock, $10 to create the contract, let’s round this up and say $15 per transaction. To buy the stock is one transaction, to write the contract and create this for the stock market is another transaction. $15 x 2 = $30.
If our income is $1,940 and the brokerage is $30, then our net return is $1,910.
$1,910 / $42,400 x 100 = 4.5% Return on Investment for 4 weeks.
Just compare this with the bank’s Term Deposit and the Australian market.
Do this for ONE MONTH and do nothing for 11 months and you have outdone the banks. Consider now, how many people around the world hold shares and miss out on this income on a monthly basis.
BHP was paying a return of $670 on an investment of $48,340 at the time I did these figures. For the same time and effort, would you prefer $670 profit on your $48,340 investment or, $1,910 on your $42,400 investment?
It’s not rocket science. Just think about what you can do with this income on a monthly basis. How hard do people work for this type of income? If you could generate a return on your investment between 2% – 4% a month, average it out over 8 to 9 months, not 12, your annual return is up there. Now, why not 12 months? That’s because we don’t always want to do this every month. Knowing when to do it and when not to, is part of a system to help you build your wealth. 2% over 8 months is 16% or more. Think about that. Now, do you see the bigger picture? It’s time for you to think outside the square. There isn’t a bank in the world offering 16% interest on term deposits not even 10% on your money.
Remember, approximately 38% of Australians own shares and less than 2% actually do this. Some own shares through their managed super funds and so, have little opportunity, but for all those who own stock in companies in their self-managed super funds or separately, so few are making anything from their investment other than whatever it might or might not make over time. How much money is left on the table every month due to ignorance?
This Is an Income Strategy From The Stock Market
Most US retirement accounts only allow this Covered Call strategy to be transacted. We have all heard of the term ‘self-managed superfund’. In the US, they call it a 401K/IRA. This is the only strategy the US administration allows the Americans to trade with their 401K / IRA. What does it tell you about the strategy?
Now, what you need to understand is this: This strategy has been in existence since 1973. I did say earlier in this series of blogs that banks and stockbrokers have been doing this for over 4 decades. We haven’t created this strategy, but we have, I personally believe, perfected this strategy. This strategy pays income.
We provide our members with stock choices to consider most days. Our education teaches our members to rely on nobody else but themselves, not even us. Remember what I said about how I want to be in control? I want to make the decisions about my money? We practice what we preach and insist our members develop the skills and knowledge to make their own decisions. Remember the old saying:
‘Give a man a fish and you feed him for a day, Teach him how to fish and he can feed himself for life!’
We hold our positions even if the stock comes down, holding on, earning an income because the income will eventually overpower the drop in stock value and we can then potentially close the position at a Profit.
We don’t need to panic, we hold a tangible asset, being the stock. Most people sit on stocks over many years doing nothing; watching them go up and down and missing out on the income. If any stocks do fall in price, most will, within three to six months, go back up. Patience is your best friend.
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Come on, you have to be excited by the potential of this by now. I know I was when I discovered it. It completely changed my life and I have a feeling that it can do the same for you too.
You Can Also Learn This Strategy by Attending the “Smart Money” Online Masterclass for Free, Where We Will Dive Deeper into the Reasons Why We Trade on the US Market.