I have been commanded to speculate: what to do?

[Scanner]

Okay, I am in an interesting dilemma.

I was actually thinking of doing an article for Savingadvice for getting money for college funds.

Here's my personal situation. Going through messy expensive divorce. Got a 13, 8, and 2 year old and only $18,000 saved. $6000 in my name as custodian and $12,000 in hers. Not sure if I will fight to move $3000 accordingly so I may end up with that (atty. and I will talk. . .transfership is relatively easy, I think).

I plan to pledge 1/3rd as divorced father. 1/3rd should be on her and her family and 1/3rd on the kids.

So, I have a goal of $40,000 for each child saved. I may make up 1/3rd difference with earnings.

Anyway, I am behind on retirement too, having to buy a new townhome or something and I thought long and hard about this and took an emotional risk and I thought years down the road I didn't want to be begging family for $4000 here for a semester, $1000 there, and they all know I am a good investor/fidicuiary of money so I took my hat in hand and I asked for "benefactors."

My reasoning was it was better to aks for little money now, reguarly, and well managed, invested and willed to a family member in case of my death, than to go asking for a lot of money years from now.

Well, I asked my best friend from childhood, a nephrologist (we own a website together) and I haven't asked my sister and parents yet (still getting up nerve). I was going to create a central bank account in my name and then automatically deduct into each of the 3 kids 529's and of course show documentation that the money is being deployed to said goal (not me).

(thus ended my article for Savingadvice - creative ways to finance kid's education - find benefactors/pledgers)

So. . .my first benefactor (or my kid's benefactor to be more direct) said he would be honored (we were like brothers growing up). He's been there through my divorce for me.

But benefactors are eccentric bunches - he has 1 condition - he wants me to speculate with 50% of what he gives ($100/month for all 3 kids. . .so $33/month per kid) and then if we have any left over at the end of colleges, we are to split it he says. And when I mean speculate, I don't mean just putting it in an emerging fund, I think he wants me to really speculate, you know?

(he wants us to go to Scotland because he says the women are really into American men, LOL - topic for a different forum)

Sooooo. . .here I am.

I have never really speculated with a lot of my portfolio, although everyone here knows me as an aggressive risk taker - hell, my portfolio is 45% in silver today when I looked. I just have to put a bottom on that ETF.

So, my question to the forum is:

A. Do I accept his terms (I don't see how I have a choice - he's kind of a fun-loving guy and he is the benefactor after all)?

B. How the heck do I speculate with $600/year?

Penny stocks?
Stock options?
Commodity futures?
Day trade?

Gawd. . . I can just see the spam whizzing towards me at bullet induced speed here - LOL. Free money burning a hole in pocket - what to do?

So. . .I'll accept answers only from the usuals - Disneysteve, BA, JimOhio, etc. Or anyone with a college degree or higher on this website.

I won't accept the obviously spam answer of purchasing an annuity, LOL.

[gambler2075]

B. How the heck do I speculate with $600/year?

Penny stocks?
Stock options?
Commodity futures?
Day trade?

Gawd. . . I can just see the spam whizzing towards me at bullet induced speed here - LOL. Free money burning a hole in pocket - what to do?

So. . .I'll accept answers only from the usuals - Disneysteve, BA, JimOhio, etc. Or anyone with a college degree or higher on this website.

Well, as one the people who is the most anti-buy-and-hold on this website, I will answer, although I am not on the list of "acceptable" people to answer the question

Penny stocks: terrible idea. They run on momentum (momo) and you have to trade them. Absolutely do not buy and hold them, you need a completely different mentality, and you almost certainly will lose all your money if you try.

Stock options also a terrible idea. Yeah, you might make a few 50% profits, but one day you will be caught looking the wrong way and will lose it all.

Commodity Futures: Way too speculative, along with index futures.

Daytrade is also a terrible idea, until you have paid your tuition (i.e. made about a couple of thousand trades and realized what does NOT work).

-So where does that leave you? I would say you should swing trade. Find some biotechs that have hit support and are running up into an FDA meeting. AVNR is one, for example... currently pulling back on a bearish post on gekkowire. I am thinking of buying soon as I think there is quite a good shot of FDA approval on April 30th, as I think they have appropriately addressed the FDA concerns from the complete response letter of 2006... the only think I think is questionable is whether the FDA will get hung up on the increased level of dizziness that people had. No position currently. Current price 3.10

g

[jIM_Ohio]

Of these options

Penny stocks?
Stock options?
Commodity futures?
Day trade?

options are by far the safest. There are restrictions on options in IRAs (I don't think you can sell Puts for example), so if this a 529, check for same restrictions.

Look for a lesson on options. The examples in the series 7 prep made it look like a great way to make short term money. It is by far my weakest area of prep though. It was foreign to me when I started, I can almost now explain its benefits (leverage, limited losses).

[disneysteve]

Go to Wizard of Odds: The last word on gambling strategy. Print out the strategy sheet for 9/6 Jacks or Better video poker and make sure you understand it. Find the nearest casino that offers that game and go spend a few hours playing with your speculation bankroll.

[scfr]

Scanner, I'll leave the response to your question on speculating to others as it really isn't my thing.

But if you'll accept some advice that addresses your question from a slightly different angle (and yes I do have a college degree and have nothing to sell you), I will tell you what worked for my sister as far as lining up benefactors. She requested that, for her children's birthdays & Christmas, family members make contributions to their college funds. I have honored her request since the day my niece & nephew were born ... I give them a small wrapped gift to open & give my sister a check. I even sent one for their births, and an extra one every year for Valentine's Day. I guess you could say I am their benefactor. I believe that I contribute almost as much to their funds each year as my sister does. Her approach worked well because she was asking for $$$ in lieu of (not in addition to) something we would be doing already.

Because I really admire her for making that particular request, the checks I send represent more $$$ than what I would have spent on consumer goods for gifts.

Because you seem reluctant to ask your sister & parents, I suggest this as an alternative approach that I'm sure they won't find at all offensive.

[Broken Arrow]

Biotech R&D is still too speculative to me. It's like a sub-set of trading within regular trading that not every trader is attuned for. It's definitely not something I would recommend for someone who is just starting out with trading.

You can sell puts in an IRA, but not every brokerage will allow it (such as Scottrade). Even with the ones that will, chances are, they will want very specific requirements before they will allow it, such as 5 years of options trading experience, adequate cash or margin to cover the potential losses, and consequently, all put selling strategies have to be defined, not unlimited.

However, I do sell call contracts, and I like the relatively conservative strategy so much that I would recommend it, but only for people who have prior experience with regular stock trading first. You still use your stock trading skills quite a bit, and even in writing contracts, it has a direct impact on the amount of premiums you are likely to make.

45% in SLV to me is, well, after all these years, you know how I feel about it. But if you like it so much, why not buy and sell SLV? Selling it doesn't mean you won't buy it back later, and perhaps at a profit (or loss). You also don't have to trade all or nothing. You can trade a small amount of your money at a time and see what happens.

But the truth is, I'm not sure why it's important to speculate. If you're happy with your current investment strategy, then why not stick with it?

[jIM_Ohio]

Biotech R&D is still too speculative to me. It's like a sub-set of trading within regular trading that not every trader is attuned for. It's definitely not something I would recommend for someone who is just starting out with trading.

You can sell puts in an IRA, but not every brokerage will allow it (such as Scottrade). Even with the ones that will, chances are, they will want very specific requirements before they will allow it, such as 5 years of options trading experience, adequate cash or margin to cover the potential losses, and consequently, all put selling strategies have to be defined, not unlimited.

However, I do sell call contracts, and I like the relatively conservative strategy so much that I would recommend it, but only for people who have prior experience with regular stock trading first. You still use your stock trading skills quite a bit, and even in writing contracts, it has a direct impact on the amount of premiums you are likely to make.

45% in SLV to me is, well, after all these years, you know how I feel about it. But if you like it so much, why not buy and sell SLV? Selling it doesn't mean you won't buy it back later, and perhaps at a profit (or loss). You also don't have to trade all or nothing. You can trade a small amount of your money at a time and see what happens.

But the truth is, I'm not sure why it's important to speculate. If you're happy with your current investment strategy, then why not stick with it?

Scanner- if you do some other techniques (similar to this) you can really hedge your bets.

For example go long on several stocks
then sell calls or buy puts on the same stock

If your stock goes down, you make money from buying puts or selling calls
If stock goes up, the long positions profit, and the puts/calls expire worthless.

Buyer beware- find a licensed options trader to explain this to you in more detail.


Other people buy calls and puts on same stock, that can work too.

In addition, you would be better off going aggressive sooner and conservative later, so it might be wise to negotiate.

Put 66% of money at risk for 13 yo now, and within 3 years pull all money out of market into TIPS or similar.
Put 66% of money at risk for 8yo now, and within 5 years pull money out into TIPS, then let it sit for 4 years.
Put 50% of money at risk for 2yo now, and within 8 years pull money out and let it sit for 8 years in something conservative.

By doing this you put your kids interest when planning is important (for example at age 16 a kid has to know how much is coming so they can choose the right school).

[minnie1928]

Why not let him offer up the speculation? Meaning, take his money and let it accumulate to $x and once you have enough for a decent investment that won't be eaten alive in fees invest it in something he wants. FWIW, I like Tradeking for stock purchases. The trading fee is only $4.95 with no maintenance fees.

FWIW, I have a degree in Accounting and I'm a CMA (Certified Management Accountant).

[gambler2075]

Well, as one the people who is the most anti-buy-and-hold on this website, I will answer, although I am not on the list of "acceptable" people to answer the question

Penny stocks: terrible idea. They run on momentum (momo) and you have to trade them. Absolutely do not buy and hold them, you need a completely different mentality, and you almost certainly will lose all your money if you try.

Stock options also a terrible idea. Yeah, you might make a few 50% profits, but one day you will be caught looking the wrong way and will lose it all.

Commodity Futures: Way too speculative, along with index futures.

Daytrade is also a terrible idea, until you have paid your tuition (i.e. made about a couple of thousand trades and realized what does NOT work).

-So where does that leave you? I would say you should swing trade. Find some biotechs that have hit support and are running up into an FDA meeting. AVNR is one, for example... currently pulling back on a bearish post on gekkowire. I am thinking of buying soon as I think there is quite a good shot of FDA approval on April 30th, as I think they have appropriately addressed the FDA concerns from the complete response letter of 2006... the only think I think is questionable is whether the FDA will get hung up on the increased level of dizziness that people had. No position currently. Current price 3.10

g

Oops, meant Oct 30th, not April 30th. Anyway, didn't take a position this morning at 3.10, but probably should have, lol

Good luck with your speculative portfolio!

g
update: down ~40K$ in the past 3 days, still well up on the year.

[Broken Arrow]

Forgot to add this tid-bit, but you can trade options on ETFs as well. In fact, there's quite a bit of options activity surrounding SLV. Selling call contracts turns your SLV position into a monthly income generator, especially if nobody can talk you out of selling any of it.

Still though, I advise extreme caution as you venture into the world of trading, especially options trading.

[KTP]

This kind of reminds me of that bible parable where a dude gives his three servants a couple bucks and then leaves town for a few years. On return he is quite pissed at the servant who just buried the money and didn't earn any interest with it.

Moral of the story? Don't invest in treasuries.

[jpg7n16]

Scanner- if you do some other techniques (similar to this) you can really hedge your bets.

For example go long on several stocks
then sell calls or buy puts on the same stock

These are just covered calls, and protective puts. Covered calls limit your upside (boost returns in flat/down markets), protective puts limit your downside (lessen gains in good times).

Options Strategies: Covered Call
Options Strategies: Protective Put

You can essentially replicate a stock purchase with a protective put, by just buying a call. Requires less capital outlay for the same position.

Options Strategies: Long Call

Notice the charts are virtually identical as options have an inherent stop loss.

If your stock goes down, you make money from buying puts or selling calls
If stock goes up, the long positions profit, and the puts/calls expire worthless.

Buyer beware- find a licensed options trader to explain this to you in more detail.

Meh - it's not too difficult:

Buying stock, buying calls, selling puts: You make money when the stock goes up. Lose if down.
Shorting stock, buying puts, selling calls: You make money when the stock goes down. Lose if up.

If you think the stock will go up - choose from the 1st line. If down, choose from the 2nd.


But you can combine the two to hedge your bets. Puts hedge stock positions (stock is losing, but puts are making), calls hedge short positions (short position is losing money, but the call is making money).

Think of protective puts like an insurance policy against your stock going down. So if the stock goes way down, you lose on the stock, but you make most of it back on the put - for a smaller limited loss overall. And you pay a little premium for the insurance.

Other people buy calls and puts on same stock, that can work too.

This is a straddle. Options Strategies: Long Straddle

It should be used to speculate when you feel that the stock price will move greatly in one direction or the other. The best example would be a company pending some legislation - if favorable ruling, company stock could go up (call = big profit, put = small loss), if unfavorable, stock could shoot down (put = big profit, call = small loss). Worst case scenario is stock doesn't move at all (put = loss, call = loss).

In addition, you would be better off going aggressive sooner and conservative later, so it might be wise to negotiate.

Put 66% of money at risk for 13 yo now, and within 3 years pull all money out of market into TIPS or similar.
Put 66% of money at risk for 8yo now, and within 5 years pull money out into TIPS, then let it sit for 4 years.
Put 50% of money at risk for 2yo now, and within 8 years pull money out and let it sit for 8 years in something conservative.

By doing this you put your kids interest when planning is important (for example at age 16 a kid has to know how much is coming so they can choose the right school).

Agreed that over time you need to transfer assets to more secure investments.


Before doing any of this, you should ask the guy what exactly he means by "speculate." Does he mean, speculate with stocks? or speculate with highly speculative investments? speculate on interest rates? FX rates?

what does he mean? (apparently Minnie had the same idea! )


FYI - I have a BA in Finance and passed the CFP exam in March.

[Broken Arrow]

The biggest problem with buying options is that you're always limited by a time frame. Even if your thesis is sound, if it doesn't happen within the specified time frame, it's still a lost trade.

Premium cost is the second problem with options. When you buy in, you start from behind, and depending on the premium cost, your break even point (BEP) can be as far away as 10% to 15%.

I suppose a third "problem" is the highly volatile nature of options. In stocks, it's not unusual to see as much as 10% to 30% fluctuations within a month right now, but in options, it's more like 100% and more.

Because of all this, I prefer to stick with stocks when I can, instead of buying option contracts. Yeah, all of these options look nice when you chart it out, but the premium cost and time limit just isn't worth it to me. But... who knows? At the rate I'm going, I might change my mind on that someday too.

For now, I prefer to be on the seller side, especially with covered calls. Sure, on paper, it looks like it limits your upside while you're still saddled with all the standard downsides, but in practice, there are all sorts of settings you can tweak, such as strike price and time frame, to turn them into relatively safe income generators.

In fact, my basic strategy is dirt simple right now: If a stock is a buy, I buy. If a stock is a hold, I cover call my holds. If a stock is a sell, I sell. That's it. Keep it simple.

As for straddles, that one always makes me chuckle. I'm not saying there's anything wrong with it, but you know what that strategy basically boils down to, right? "I don't know what's going on here, but SOMETHING is going on here, and whatever it is, I want in!" For extra sprinkles of irony, straddle the VIX.

[Scanner]

This kind of reminds me of that bible parable where a dude gives his three servants a couple bucks and then leaves town for a few years. On return he is quite pissed at the servant who just buried the money and didn't earn any interest with it.

Moral of the story? Don't invest in treasuries.

KTP,

YOu aren't far off on this. My friend is highly intelligent ( a doctor ), and a bit eccentric and I think he thinks I am well, a bit "repressed" and wants to "unleash me" as an investor.

It has nothing to do with how happy or not I am with my current investing approach. He wants me to take risks in a biblical way.

DisneySteve,

I had actually considered gambling with the money as we all know futures and options markets are manipulated. At least you know what advantage the house has with casino gambling.

You have no idea what advantage COMEX, NYSE, etc. has because the markets aren't regulated and we have a very anti-regulation sentiment here in the US.

This of course leads the market prone to manipulation and tampering.

I don't think my friend realizes how much the house is stacked against you.

Your idea is on the table.

JimOhio/BA:

I was not aware I can actually work with options on ETF's like SLV, GLD, and USO (oil, gold, silver). Is that possible? If that's the case, and I could limit my exposure to people (stocks), I may put that idea on the table.

[jpg7n16]

DisneySteve,

I had actually considered gambling with the money as we all know futures and options markets are manipulated. At least you know what advantage the house has with casino gambling.

You have no idea what advantage COMEX, NYSE, etc. has because the markets aren't regulated and we have a very anti-regulation sentiment here in the US.

This of course leads the market prone to manipulation and tampering.

I don't think my friend realizes how much the house is stacked against you.

Your idea is on the table.

You are way too concerned that the world is out to get you. It is very possible to make a fortune investing by making smart investment decisions and giving them time to pan out.

There is no conspiracy against you. The "house" doesn't exist in the stock market.


If you don't know about a stock, then don't buy it!

JimOhio/BA:

I was not aware I can actually work with options on ETF's like SLV, GLD, and USO (oil, gold, silver). Is that possible? If that's the case, and I could limit my exposure to people (stocks), I may put that idea on the table.

For evidence, I'd point out that you don't think that Silver is controlled by the gov and is trying to screw you, but you think Wal-Mart's stock is?

Why one and not the other?

My point is, if one investment type is being controlled against you - every investment type is being controlled against you. (but they're not)