Friday, December 16, 2016

High Interest Savings Part #2.

       We continue this topic from the last entry.

 During the last week, the FED raised the rate by 25 BPS, or 0.25%.  This will lead to a trickle effect where the interest paid on loads and mortgages will have the interest rate increased.  This will eventually likely lead to increase in the interest rate of savings accounts.  This increase in the interest rate on savings account still keeps the interest rate small.  So a saver should try possible other options if they have a well funded emergency fund in place.

  An option is to sell deep out of the money or simply out of the money put options on stocks or ETFs.  When you sell a put option, the investor receives the option premium minus commissions upfront.  So, if the price of the stock remains above the strike price or goes sideways, the investor still gets to keep the premium and can do a rinse and repeat with the same stock or a different stock.

  If the put option is assigned, the investor purchases the stock or ETF the strike price.  So the adjusted cost basis is  calculated as follows :

       Please note:  Not all brokers charge an option assignment fee for an option seller or option exercise fee for an option buyer.

      So what can the investor due if the option is assigned. If he wants to get rid of the stock , he or she can sell a covered call.  A covered call gives the option seller the write to sell 100 shares of stock multiplied by the number of contracts at the strike price at or before expiration.  The covered call writer receives a premium up front.  An additional bonus of this method is that, the covered call option seller with receive the dividend if they owned the stock before the ex-dividend date. 

    The premium collected should not be account as income per se. Keep it in the savings account to help the balance grow.  The downside of this method is the saver can end up losing money if the stock or ETF falls in value.

Disclosure:  I used these methods from time to time in my investing accounts.
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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