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Safely Generating Income in Retirement

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I’m back!

Posted by mounddweller on January 1, 2018

Fellow Investors,

A new year has arrived and I have returned from a multi-year hiatus from writing in my blog.  Going forward the blog will have a new focus.  Previously, I focused on trading covered calls and naked puts for income.  Now that I’m a few years older and a little bit wiser, I’ve learned there’s a less stressful way to fund my retirement years.  Over the next couple of weeks I hope to introduce you to my new approach.

Until next time…




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Calculating ROIC – Follow-up

Posted by mounddweller on June 23, 2013

Fellow Traders,

This post is in response to the comment I received back from Esa regarding more specific questions about how to calculate the total amount of capital employed during a reporting period.  Esa has follow-up questions regarding specific trades.  A visual representation of the trades is shown below.

BLOG - ESA's Trades

In looking at this graphic and performing a few calculations I arrived at the following key performance indicators (KPIs) for the month of May:

Minimum Capital: $0.00 (Esa did not have any open trades during the first 5 days in May)

Maximum Capital: $30,250.00 (Esa had 5 open trades the last two days of the month ($3600, $7250, $4150, $9750, and $5500))

Average Capital: $8,982.26.  This can be calculated in one of two ways.

(1) Add the total amount of capital required for each of the 31 days during the month of May then divide this sum by 31.    [((0+0+0+0+0+3600+3600+3600+3600+7750…)/31)] or,

(2) Calculate the average capital required for each trade and then sum the 7 results.  [((WFC=3600 x (26/31)) + ((KO#1=4150 x (10/31)) +…]

Now, let’s look at Esa’s other question…

“First of all, am I wrong when I say that you would put WFC and MSI as June’s trades because they expire in June (unless for example bought back in May)? Do you see a problem in putting them into May’s figures? Obviously this might be different with puts and calls as the latter’s profit depends usually on whether the option is called or not. “

I say, it depends.  If the WFC and MSI trades are naked puts (NP) then I put them in my May trades.  If they are covered calls (CC) then I would wait and include them in my June results.  Why, you ask?  Well, for me it’s all about calculating cash flow and ROIC.  If they are NPs then I know the total amount of cash flow I’ll receive right away.  With CCs it depends on whether the call finishes ITM and I’m called away or OTM and I’m left holding the stock and needing to enter another CC trade the following month.   Another approach would be to include the CC premium in the month it was received and any subsequent gain/loss on the corresponding stock position in the month the position was finally closed.  However, this would increase the level of complexity required in keeping track of your trades and their results.

So, for simplicity’s sake let’s assume all 7 of Esa’s trades were NPs.  Let’s further assume each earned a 1% ROIC net of all fees and expenses.  What would Esa’s total return on invested capital be for the month of May?  What would be the annualized result?


Esa’s total return on invested capital would be 4.30%.  How did I calculate this?  Well I added the individual 1% cash flows received from each of the NP trades initiated in May (i.e, $36 + $41.50 + $42.50 +…).  This equals $386.50.  I then divide this sum by the average amount of capital used during the month of May.  Recall, this was $8,982.26.   Annualized the return would be 50.66%.   This is computed as follows: [(0.043 x (365 / 31))].

I hope my explanation is easy to understand.  If not, let me know where I failed to clearly communicate.





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Calculating Return on Invested Capital (ROIC)

Posted by mounddweller on June 22, 2013

Fellow Traders,

I recently received a comment and question on my May 2013 Results posting.  Esa, from Finland, wanted to know how I would calculate my Return on Invested Capital (ROIC) and determine the total amount of capital used when I held multiple positions during the course of a month.  Below I provide ROIC and total amount of capital used calculations for three different scenarios.

BLOG - ROIC calendar

In Scenario #1 I am placing three different trades on the same day.  Let’s assume the following:

(1) each trade will be held for 30 days,

(2) each trade requires $5,000 in capital,

(3) each trade generates a 1% ROIC net of all fees and expenses.

What is the total capital used?  In this scenario the answer is easy…$15,000.  I had three trades, each requiring $5,000 in capital.  The ROIC calculation in this scenario is also easy.  Each trade had an ROIC of 1% so my total ROIC must also be 1%.  My annualized ROIC is 12.17%.  This is calculated as follows:  [((0.01 x 365) / 30)].

Scenario #2 is a bit trickier.  In this scenario on the first day I place a trade requiring $5,000 in capital.  Like in the previous scenario it is held for a period of 30 days.  10 days later I place a second trade.  It too requires $5,000 in capital.  However, I only have this trade open 20 days.  10 days later I place my 3rd trade.  I hold it for 10 days and it also requires $5,000 in capital.  Like before each trade generates a 1% ROIC net of all fees and expenses.

What is the total capital used?  The answer is $10,000.  Here’s how I arrived at that number…[((5000*(30/30)+(5000*(20/30))+(5000*(10/30))))].  Trade D was held for 30 days, Trade E was held for 20 days, and Trade  F was held for 10 days.  Each required $5,000 in capital.  What was my ROIC?  It was 1.5%.  Each trade generated a return of $50.  Thus, to calculate the combined ROIC we simply divide the $150 earned by the $10,000 in average capital required to place the trades.  The annualized ROIC is calculated the same way as in Scenario #1.  [((0.015 x 365) / 30)].

Scenario #3  assumes three equal, consecutive trades are made.  Trade G is closed out before Trade H is entered.  Likewise, Trade H is closed out before Trade I is entered.  Each trade lasts 10 days.  Each trade requires $5,000 in capital.  As before each trade generates a 1% ROIC.

What is the total capital used?  The answer is $5,000.  I used the same capital 3 times during the month.  The ROIC is 3%, one percent for each of the three trades.  The annualized ROIC is 36.5%.  It is calculated as follows: [((0.03 x 365) / 30)].

So there you have it.  If anyone has another way of calculating returns please let me know.




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2012 in review

Posted by mounddweller on December 30, 2012

The stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

4,329 films were submitted to the 2012 Cannes Film Festival. This blog had 16,000 views in 2012. If each view were a film, this blog would power 4 Film Festivals

Click here to see the complete report.

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Weekly NP Strategy – 05/11/2012 Expiration

Posted by mounddweller on May 3, 2012

Fellow Traders,

It’s that time of the week again.  My plane landed on time and I’m home and able to post my message about what I found in our Weekly NP Strategy query.  This week our query returned 75 possible trades.  Of these I think 3 of worthy of further consideration.  They are IDCC at the $25 strike, NVDA at the $12 strike, and RIG at the $48 strike.

IDCC sold off big earlier this week after missing anlaysts expectations.  NVDA is nearing support at $12, and RIG looks like a bargain at $48.

As always do your own due-diligence.

The remainder of the possible trades can be found here:




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New Trade – SLW

Posted by mounddweller on April 27, 2012

Fellow Traders,

Believe it or not I placed another new trade today.  Hard to believe isn’t it.  My trading had slowed way down.  Primarily for two reasons, (1) I didn’t trust the market, and (2) everything I wanted to trade had run up in price beyond what I was willing to own it at.

So, what changed?  Well, to be honest, nothing really.  I still don’t trust this market and there just isn’t much that I like at these prices.  However, I finally said I have to do something, I can’t keep all of my money in cash, not if I want to reach my retirement goals.  So, I decided to give Ron Groenke’s new trading system a try.  As I mentioned in my post yesterday, Ron has had great success with his new “Show the Trade” algorithms.  Having used Ron’s VISIONS software for the past several years, and having met him personally, I trust that he knows what he is doing.

So, I’m ‘sticking my big toe in the water’ so to speak and seeing if I can replicate Ron’s results in my own trading.  Yesterday, was my first “Show the Trade” trade in Chevron (CVX).  Today, it was Silver Wheaton (SLW) that flashed a buy signal so since I’d successfully traded it before and was comfortable owning it at these prices I decided to give it a go.

Here are the trades I executed.

(1) Bought 200 shares SLW at $30.07

(2) STO 2 MAY $29 puts at $0.64

Here is the one year price chart for SLW.  As you can see it has strong support in the $28-$29 range.

Well, there you are, two trades in two days.  I must be losing my mind (ha ha).  Time will tell if I can replicate Ron’s success.  Have a great weekend.



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Weekly NP Strategy – 04/13 Expiration

Posted by mounddweller on April 5, 2012

Fellow Traders,

My apologies for being out of touch for the past couple of weeks.  I’ve been very busy at work.  I did finally have time this evening to run the Weekly NP Strategy scan.  This week the scan returned 37 trade opportunities.  While I must admit I didn’t have time to do much in the way of due-diligence, one did catch my eye.

Once again it was a trade in VXX.  This time I like the $16 strike.  VXX has been rising for the past several days after bottoming a couple weeks ago at $15.57.  This $16 strike closed today at $0.13 bid.

This trade is not without significant risk.  Proceed with open eyes.

The other 36 trades can be found here:






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Update – HGT

Posted by mounddweller on January 20, 2012

Fellow Traders,

I want to update you on my covered call trade in Hugoton Royalty Trust (HGT).  Yesterday, I closed out this trade at a substantial loss.  However, my dismal result was entirely preventable.  I made a couple of mistakes usually attributed to ‘newbies’, not guys like myself who have been trading and investing for 30 years.  You’d think after this long I would be immune to such bone-headed moves.

You may recall that I successfully traded HGT on 2 previous occasions.  This third time was looking to be equally successful before I made my mistakes.    Back in March 2011 I bought 500 shares of HGT and sold AUG calls.  These calls expired OTM and I sold another round of NOV calls.  These too expired OTM.  Shortly after the NOV expiration HGT began to trade a little lower.  I continued to keep an eye on it so I could sell another round of calls 4-6 months out.

Mistake #1 was not keeping up on what was going on in the natural gas market.  Natural gas prices have fallen sharply in recent weeks.  They now trade at generational lows.  Mistake #2, since my position in HGT was a trade and not a long-term holding, I should have exited the postition when HGT approached my break-even price.  Mistake #3 came a week or so ago when I compounded my problems by buying more shares thinking the stock couldn’t fall much further.  How many times have you heard “never try to catch a falling knife”?

After finally coming to my senses yesterday I sold my 1,000 shares of HGT for a sizable loss.  A loss of almost $3,700!  It is mistakes like that that wipe out the returns on many great trades.

Word to the wise…do NOT let small losses turn into big ones.  Admit your mistake in the trade and get out.

Am I going to swear off HGT and never trade it again?  No way!  I made some mistakes but the strategy is still sound.  Once HGT does find a bottom I will be back in it again collecting its monthly dividends and selling covered calls.





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Dividend Superstars

Posted by mounddweller on December 30, 2011

Fellow Traders,

I have updated my blog to include a new page listing the companies which meet my “Dividend Superstars” criteria.  You will find that page here:

On that page you will find that I have segmented the companies into three categories; Champions, Contenders, and Challengers.  Definitions for the categories and further details on the selection criteria can also be found on the new page.

Also, on my page you will find a link to my trading plan page.  However, I have not yet had time to update that page to include details on my new Dividend Superstar trading strategy.  The page requires a total rewrite because it includes a lengthy discussion of the newly retired Deep OTM NP Strategy as well as other dated material.  I will post another message when I get it rewritten.



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Weekly NP Strategy – JAN 6 Expiration

Posted by mounddweller on December 30, 2011

Fellow Traders,

Our weekly NP Strategy screen identified 47 possible trades with a January 6 expiration.  Of these I found two that I think are worthy of your consideration.  They are trades in Abercrombie & Fitch Co (ANF) and Cleveland-Cliffs Inc Co. (CLF).

Here are the specifics for the two trades.  I’m late in getting this posted so the bid prices may no longer be accurate.  Be sure to double check prices if you decide to execute either one of these trades.

(1) ANF at $48.74 sell the $46 strike at $0.34 for 0.69% ROIC (36.37% annualized) with 6.32% DSP

(2) CLF at $62.39 sell the $57.50 strike at $0.31 for 0.54% ROIC (28.11% annualized) with 8.33% DSP.

Note: for the more adventurous among you, CLF also has a good trade at the $60 strike.  This is right at recent support levels.

Happy New Year!





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