Money guys....whaddya think of this plan

[Drdogface]

First, I'm retired and living off my investments and Social Security, so I'm not wanting to take any major risks with principle. Up until now I've been managing my own portfolio in Schwab and done OK...not great...but OK. These days things just seem to be much more complex and fickle, so I contacted my Schwab advisor. I want to keep my mix of investments moderately conservative.

His suggestion was to manage my acct. (for a fee of course) in a mix of ETF's of various sectors while selling some short term (3 mo.) puts and covered calls to generate extra income. He explained that the price to exercise the call option would be set fairly high thinking it would not be reached in 90 days. Same on the puts I think. He projects that he can make about 6% for me after fees and there would be no trade charges.

I've always heard that options are for brave guys who really know what they're doing and that they are mighty risky but he said that's for un-covered calls where much more is at risk. This would all be done inside my IRA so there would be no tax impact by selling what I already have.

So...is this something that a conservative investor should consider?

[Shadetree930]

In a word NO!

Not one single part of his plan is acceptable for someone in your situation.

Find a new advisor.

[Drdogface]

Man, thanks for the input. I was kinda nervous about it but that's pretty definitive. Appreciate the opinion.

[legion]

Sounds like this guy is looking for someone else's money to prove out his ideas with.

[pwd72s]

Brokers are like car salesmen...they are not advisors...matters not if Schwab gave him that title, he sounds like a broker to me. (edit) You do realize that Brokerage Houses often give underlings orders to dump holdings that they consider to be dogs? "Discount" or not, they all do it...I suspect this may be in play here.

(next edit) I'm pretty much in your position. Just my opinion...RUN from this "advisor"....keep the P-car in your garage, don't place one in his through frequent trades.

[on2wheels52]

My broker hasn't advocated that stradegy yet. Might be ok for some 'play' money but I wouldn't mess with my IRA's.
Jim

[Porsche-O-Phile]

Originally Posted by legion

Sounds like this guy is looking for someone else's money to prove out his ideas with.

Exact-o-mundo.

Covered (and uncovered) options are something to research and if you want, try on your own. There are plenty of options trading services out there you can use (I recommend OX personally). If that's too much risk at this point in your life (understandable), you don't have to. No problem.

I'm starting to seriously believe that the only person that can honestly be trusted with my money is me. Even though I have probably 1/1,000 the knowledge of the pros. They all seem to have ulterior motives and are just generally untrustworthy.

[Dottore]

Don't even think about it.

[pwd72s]

Originally Posted by Porsche-O-Phile

Exact-o-mundo.



I'm starting to seriously believe that the only person that can honestly be trusted with my money is me. Even though I have probably 1/1,000 the knowledge of the pros. They all seem to have ulterior motives and are just generally untrustworthy.

Welcome to the club of those who became enlightened...the hard way.

[Joeaksa]

You might email Bob (moneyguy) who used to be on the OT. Understand that he is pretty good with this sort of thing and as he has no "dog in this hunt" he would be a fair person to talk with about this. As well he is retired and knows what you are looking for.

I have his private email if you need it.

Joe

[Drdogface]

Yeah, Joe...might be nice to get his read. Most of the opinions above are pretty negative.

Thanks...

[andrew15]

Options are pretty interesting - with different strategies, you can make them as risky (or risk adverse) as you want. The strategy that your advisor in recommending looks like this:
- Own a stock that you think will go up in the long run, but if it goes down you would be comfortable buying more.
- Sell puts - would allow the buyer of the put to sell you x # of shares from you at a set price within a set timeframe.
- Sell calls - Would allow the buyer of the call to buy x # of shares from you at a set price within a set timeframe.

Basically with this strategy, you would have already said if the stock goes up really high in a 90 day period, you would sell and if it went down a lot you would buy. Selling options with those prices attached means you collect a small premium for sticking to your original plan.

It's not a bad strategy and it's not particularily risky. That said - if you don't understand the ins and outs of options, it may not be the right strategy for you and your situation.

Options are great when used in the right situation - they can be a speculative instrument or be used to protect existing gains or hedge a loss.

I used to work for a full service brokerage firm up here in Canada and even though I was options licensed, I wouldn't use them with clients - too much room for misunderstanding as noted by some of the comments above.