Value_Added

Yeah, it is a bit more work. I don’t really use technical indicators for much except buy/sell points and in this instance they can help collect more premium before being called away or put the equity. Oftentimes it’s just easier to buy or sell the position outright without messing with options, especially if you wouldn’t be able to live with not owning it or not having the cash from it.

I was just using the index as an example to @73 Reds scenario of selling covered calls. As @Gregmal said, you could do it with any security, especially one you find to be undervalued. I’m not familiar enough with options to know how to effectively search for mispriced options. But if you already have your eye on a specific security, could workout great. Typically I sell slightly OTM puts to initiate certain positions and sell slightly OTM calls to exit certain positions. I’ve done this to lower my cost basis, never to generate income but it sounds appealing under the right conditions.

Just thinking here but wouldn’t a more effective income generating strategy be to sell OTM puts on the index then If it gets assigned, sell covered calls against the position. That way you’re always generating income whether you own it or not and aren’t spending anything to roll the call of the appreciated stock. If it appreciates and the option is assigned, you go straight into selling OTM puts. Im not a big options person but if solely for generating income from the index, what’s the downside to this versus only using covered calls and having to roll them?

In the U.S, If truly living off of the income from either strategy (sole means of income), qualified dividends offer a large tax advantage here (not too difficult to meet the criteria for qualified dividends). As an example - if married filing jointly, you can make up to approximately $126,000 in dividend income and pay no federal taxes. If using options, it is taxed as short term capital gains. Obviously, taxes shouldn’t be the primary factor, especially if you can earn a much higher return using an options strategy.

NRP - Natural Resource Partners. Royalty company that will be returning lots of cash to shareholders with a free call option on carbon capture

Added to CNC

Curious is something like FXY would be a good bet here with unallocated cash sitting in USD…

Everyone feels they can beat the market. And simply thinking about it doesn’t seem all that hard. It’s really the same as most things in life…emotion and our actions often get in the way of better outcomes. People with clear minds have great ideas…and hindsight is 20/20. “I can do this” …until you don’t. Even index investors sell at the wrong time. The key is to have a strategy and execute on it. The media and mania gets into people’s minds and they act irrationally.

if you’re fully invested then you can’t take full advantage. Sure you can reposition into cheaper businesses but it’s not as good as cash. I think Blake’s point is simply that the market is in the higher priced side and he is being defensive with cash to take advantage of a scenario where there’s a fire sale. @Blake Hampton it’s important to remember that everyone here has a different investing style and are at different points in their life. Yours will not match any of them exactly. Simply staying invested knowing that the market will always move up over the long term works for some, especially when you hold quality purchased well. Some just DCA into indexes and that works. Others pick individual companies awaiting a catalyst and exit after said catalyst. Some mix these strategies. Some never sell because of taxes. There’s no wrong answer. Focus on you. You don’t have to convince anyone but you need to ensure you know what your strategy is and you need to execute on it. if you want to opportunistically sit in cash and wait for fat pitches, do it! But don’t let the markets “expensiveness” fool you from not acting. META, LULU, and NFLX are great examples….all down huge while the market was arguable still expensive with more room to drop if you had an extremely bearish outlook. META and NFLX were both down -75% while the market was only down -20%. LULU was down -50% while the market was hitting all time highs. The wrong market outlook and an attempt at forecasting could’ve easily left you on the sidelines. I’m of the opinion that if you sit in cash that you need be willing to make very large bets to fully take average of great opportunities when they arise. I’m sure your goal is to beat the SPY over the long term and to do that you must remember that cash is an anchor if you don’t use it opportunistically with large bets. Best case is you time it perfectly and you can deploy 100% into deeply discounted quality….but you likely won’t. Worst case is you sit in cash and do nothing. Key point to take away here is that cash is often tied to a bearish mindset that can be paralyzing and act as a HUGE anchor. But it can be used as a tool for outsized long term returns if you know how to use it.

Pretty good memo from Howard Marks put out yesterday. More of the same old stuff but there are good points made about current macro…There are alot of indicators that say the market is very expensive but there are also a lot of indicators that say we’re not really in huge bubble territory yet. Aside from the memo…I think there is a lot of value in the market right now away from the tech and fads. These companies will not be immune from huge drawdowns but boy it’s tough stay in a large cash position with them sitting there looking all cheap and such. https://www.oaktreecapital.com/insights/memo/on-bubble-watch

Brett Kelly from Kelly Partner Group (KPG.AX) comes to mind. Numerous references to Munger, Buffett, and Mark Leonard in the company’s “owners manual” for investors. https://info.kellypartners.com.au/hubfs/Kelly%2BPartners Group Website 2024/Documents/Investor Center/Owners Manual/KPGH Owners Manual Version 4 Oct 2024.pdf?hsLang=en The shareholders recommended reading list says it all. I don’t follow the company so I’m not sure if he follows these principals or just touts them but the company seems to be performing very well. -Creating Shareholder Value -common stocks uncommon profits -Good To Great -Titan -Founders Mentality -Outsiders -100 Baggers -Intelligent Investor -etc…

ISSC isn’t exactly a drone company “yet” but their R&D budget is largely allocated toward advancing airplane safety by innovating the cockpit and controls of aircraft to become pilotless (drone). Obviously this is YEARS away and maybe even never-their first step is a cockpit without a co-pilot. Great business too. They keep acquiring small companies and product lines from large companies (Honeywell), incorporating their extreme efficiencies (completely vertical on most products) and making a tidy profit. They’re in a position now where they can really flex their operating leverage muscles. CEO mentioned they have extra manufacturing space for one or two more product lines (which will increase their EBITDA margins even more) before they need to expand their facilities. He believes with their current facilities, $100m in revenue is doable. They’ve announced 2 product line acquisitions since this statement was made so I’m making the assumption that over the next few years revenue will creep near $100m (from 45m currently). The expansion is already designed and planned and will cost $5 million to build. Per the CEO, purchasing product lines from a large player like Honeywell also allows them to cross sell their other products to existing Honeywell customers that they would otherwise have to spend money to acquire as a customer, likely with much less success. Projected EBITDA margin as their manufacturing space is fully utilized and newly purchased product lines are taken vertical is 30%. Back of the envelope math…give the projected $100 million revenue a haircut and assume $80 million in revenue. 25% EBITDA margin (current) would be $20 mil in EBITDA. No reason a business like this wouldn’t trade at 20x EV/EBITDA multiple…assuming they stay mostly debt free then the EV would be $400 million (versus $140 million today). If they get to $100m in revenue with 30% EBITDA and trade at a 25x EV/EBITDA, that’s $750m EV. Decent selling pressure due to the passing of the previous CEO. It seems his estate is liquidating his shares and this was mentioned in an earnings call as well. Lots of insider buying beyond that. http://openinsider.com/search?q=Issc Again, not a drone company but technically could be if they ever attain a pilotless cockpit. Great thing about ISSC is that they are currently and historically profitable with some degree of a moat. So they have funds to allocate to the R&D of a pilotless cockpit at a pace that makes sense based on regulations they see in the market…versus most other startups which lose money and have no hopes of making any. Also to note is their revenue is much less cyclical versus prior years as they have taken on more high quality clients via the military and Honeywell customers. This is also mentioned in earnings calls.

Any recommendations on literature that would help to understand this better?

G Bank - GBFH. Trades a bit expensive after the recent run-up but it’s a well run bank with near 50% insider ownership. High NIM, seemingly high quality nationwide SBA loans. There is also a huge call option on their gaming, credit card, and fintech division (could be worth billions over the long term) which is slowly and successfully playing out. This is what has created the high P/BV multiple (along with their rapid deposit and loan growth). Their high quality gaming deposits and credit card revenue are replacing their low quality deposits from CDs. Management seems well aware of the regulatory progression of fintech and gaming and they seem well suited to execute on their patents going forward. Interesting situation.

Thanks for all of the recommendations. This is more a fintech catalyst/opportunity with a core banking business as its foundation. I understand the fintech aspect but it is essentially a call option on the position. I need to ensure the core banking is sound as that is where the downside exists. It appears that while they’re a small community bank, they have a large reach across the majority of the US for SBA loans specifically to non-resort hotel chains. It looks as though the Bank Investor Handbook will get me started to help gain an understanding of the financial statements and filings (though The Bitcoin Standard has me intrigued from a curiosity aspect…not sure how much it would help me in this situation).