A Simple Explanation of Call and Put Options

Although I have experience trading call and put options, I attended a basic options seminar offered by my brokerage. I always learn something new, even from topics in which I have experience. In this seminar, I learned a very simple way to explain call and put options in layman terms.

Call option.   A call option is similar to a coupon which gives the buyer the right to purchase an item as a specified price.   It the item price is above the coupon price, I use the coupon.  If the item price is below the coupon price, I just buy the item without using the coupon.   A coupon usually also has an expiration date.   If consumers could purchase or sell the specified price coupons, the coupons would be a call option.

Put option.  A put option is similar to buying insurance to protect against damage to a house or a car.  Insurance generally has an expiration date and is renewed on an annual basis.   If my house or car is not damaged, I essentially lose the money I pay for insurance.  If my house or car is damaged, then I contact my insurance company to collect payment.

Of course, trading put and call options will involve additional complexity and knowledge.  However, this explanation serves as a good foundation for one just starting to learn about option trading.

For more on The Practice of Personal Finance, check back every Wednesday  for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

The Wealth Builder Carnival #118

Welcome to the one hundred eighteenth edition of The Wealth Builder Carnival. The purpose of this carnival is to collect articles from the blogosphere on building, preserving and keeping enough wealth for a comfortable retirement. For reference, I have tried to keep the carnival content tightly focused on wealth building and did not include submissions that were off topic. For reading convenience, the posts are listed with a brief summary or comment by the submitter and organized into seven categories: Earning, Insuring and Protecting, Investing, Living Frugally, Retiring, Saving and Taxes.

And now on to the Carnival.

Earning

Super Saver presents Time to Quit? posted at My Wealth Builder, saying, "There is a good chance that I will decide I'm not paid enough or get enough perks for the extra effort and stress being imposed by the company."

Insuring and Protecting

Jessica Clark presents 30 Blogs to Help You Draft Your First Will posted at Kenney Myers, saying, "A properly drafted will also helps ensure that court proceedings are concluded in a timely manner, and that disputes of your assets and estate are avoided."

Investing

Dividends4Life presents This Company Has Paid A Dividend For 118 Years And Increased It The Last 50 Years posted at Dividend Growth Stocks, saying, "In 1872, the company introduced Cashmere Bouquet, a perfumed soap. In 1873, the firm introduced its first toothpaste, an aromatic toothpaste sold in jars. The company sold the first toothpaste in a tube in 1896. By 1908 they initiated mass selling of toothpaste in tubes. Today, the company has sales of over $17 billion and operates numerous subsidiary organizations in over 200 countries and is publicly listed in the United States and India. You know the company as..."

Living Frugally

John Schmoll presents Money Saving Gardening Tips From a Frugal Mama posted at Frugal Rules, saying, "From saving money on produce and groceries to being able to eat healthier there are many benefits to having your own garden. You don’t necessarily need to have a green thumb to garden either."

Frugal Living

Jason Hull presents The Ultimate Guide to College Education for Your Kids posted at Hull Financial Planning, saying, "This compendium of information has nearly everything you'll need to know when it comes to figuring out whether or not college is a good idea for your kid, and, if so, how to get your kid through without having to sell a kidney."

Retiring

Kristine McKinley presents Medicare vs Medicaid: What is the difference between Medicare and Medicaid? posted at Social Security Retirement Income, saying, "This article discusses the differences between Medicare and Medicaid. I provide a lot of information about what each program covers, who qualifies, what each program costs, etc."

Saving

Sheri presents How Budgeting Money Can Save You $1200 a Year posted at Sheri Otto, saying, "A practical way to save an additional $1200 a year by using this simple budgeting principle. Anyone can do it."

Emily Hunter presents College Savings: You Don't Need to Be Rich, You Just Need a Plan posted at Dorethia Conner, saying, "When it comes to college, keeping your financial head in check is absolutely vital. Having a plan will pave the way."

Taxes

Edward Webber presents The New Tax Code for 2013-2014 posted at TaxFix Feed Update, saying, "In the UK the tax allowance is about to increase. This means that anyone working in the country can earn 9,449 pounds before they need to pay any tax. This post explains all about it."

That concludes this edition. Submit your blog article to the next edition of The Wealth Builder Carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: the wealth builder carnival, blog carnival.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, earning, insuring, investing, living, retiring, saving, tax, or wealth building advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Buying Into a Near Term Correction

I expect that a correction will happen soon due to the revived European sovereign debt crisis and the upcoming U.S. debt limit increase debate.   I plan to buy into this correction, choosing strong stocks that will rebound after the correction.  I will add to current positions, especially if I have sold some shares at higher prices.   I will also buy small stock positions since my trades are currently commission free.  In addition, I will buy some commission free ETFs that I've been tracking.

For now, I expect the correction to be short and shallow.  However, by purchasing only small positions, I will be hedging against the possibility that this will be longer deeper correction.

For more on Strategies and Plans, check back every Monday for a new segment.


This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

The Correction for Which I''ve Been Waiting.

For the first time in 2013, European sovereign debt issues will be at the forefront again.  Cyprus Bailout Crisis Slams Breaks on Risk–On , CNBC reports on the Cyprus bailout terms that will tax bank deposits 6.75% to 9.9% of bank deposits in order to qualify for a $10 billion euro bailout.  These terms are expected to create volatility in the stock market next week.  The expected direction of the market will be down.

I see this as the first buying opportunity of 2013.  I will watch the market early in the week and will consider the purchase of various stocks late in the week, since I believe the decline will take several weeks to adjust.

The correction may finally come : -)

For more on New Beginnings, check back every Sunday  for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Maintaining My Diet

As I wrote in Major Lifestyle Change, I am voluntarily on a very strict diet: no animal products except non-fat milk and egg whites, no added fats and oils, no nuts and seeds.  Most people who hear about my diet don't expect that I will be able to stay on it.  Many ask when I can go back to eating "normally."  Others expect I won't be able to sustain the discipline I've demonstrated so far.  Some, I suspect, think I'm crazy :-)

Admittedly, it's only been three months so the diet hasn't been a long term situation yet.  However, I think I have a good chance of maintaining this diet for a long period.  Here are some of my reasons:

Dire consequences.  Not changing my diet could lead to a significant deterioration in my health and even death.   Changing my diet has been clinically proven to have some reversal impact.  It was easy for me to be motivated to use the new diet once my health condition was diagnosed.

Family support.  My family has been very supportive as I converted to the new diet.  My spouse has always been very health conscious about food.  Now she is experimenting with new recipes that conform to the diet guidelines.  Friends have also been supportive by making dishes that meet my diet criteria.

No limit eating.  I can eat as much as I want of any food allowed in the diet, which includes fruits, whole grain products and vegetables.  So I never have to worry about managing quantity.

Best of all, I feel good on this diet.  I've lost a lot of weight, some of my winter skin ailments have disappeared or been reduced, and my digestive system seems better.

Of course, the biggest challenge is eating out, but most sit down restaurants are able to accommodate my dietary restrictions, either with steamed vegetables or baked potatoes.  So far this hasn't been much of a barrier to maintaining my diet.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Personal Learning Focus

While I was working, I focused mainly on learning to benefit the business and my career skills.   I spent some, but much less time, on learning for personal benefit.  Of course, some education on business skills, e.g. finances, also had application in my personal life.

Now that I'm retired, I focus my on learning that benefit me personally and much less time on learning that mainly benefits work.  I now spend more time learning about areas of personal interest: investing, coin collecting, healthy eating, exercise techniques, and education.

However, even the retirement jobs I did had significant personal learning benefits.  For example, the learning for a seasonal part time tax preparation job enables me to maximize the tax refund on my own return.   As an executive director of  a new non-profit, the learning helped me better understand the elements of owning a business.   As a tutor for college entrance exams, I learned some education techniques that could help our daughter.

In general, even though my retirement learning has less personal financial impact than learning for work, I am enjoying retirement learning more and therefore, am much more motivated to do it.

For more on Reaping the Rewards, check back every Friday  for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Child Related Tax Breaks

Since we do not have a mortgage, our child is one of the biggest tax breaks we have.   Here are the tax breaks for which we qualify or have qualified:

Dependency -  Our daughter gives us an additional exemption, which reduces our taxable income by $3,800. 

Child tax credit - For one child, we get a child tax credit, which reduces are taxes by $1,000.

Non taxable interest and dividends - Our daughter's savings accounts can earn up to $950 in interest and dividends which won't be taxed.

Adoption tax credit - When we adopted our daughter, we qualified for a tax credit of up to $10,630, which reduced our taxes significantly.  We were able to qualify for most of the credit.

Here are some addition child related tax breaks which we haven't used:

Earned income credit -  This credit is government assistance that is administered through tax returns and can provide over $5000 to lower income families.

Dependent care credit - Parents who use daycare providers can get a tax credit for out of pocket expenses paid.

Employer dependent care assistance - Parents can receive up to $5000 tax free in employer assistance for qualified dependent care costs.

Education tax credits -  Parents of children attending college can receive up to a $2,500 tax credit to offset out of pocket education costs.

Before I was married, I just had mortgage interest and charitable donation deductions.  After getting married, our tax breaks didn't change much.  After adopting our daughter, we receive a one time tax break and three on-going tax breaks.  In the future, we will probably qualify for an education tax credit if it still exists.

For more on Crossing Generations, check back every Thursday  for a new segment.

This is not financial or tax advice advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Minimizing Losses Mentality

During the Great Recession, I developed a mentality of minimizing losses with our savings.   It was better to be conservative and preserve capital than to take risk and incur losses.  Despite recovering most of our losses from the 08/09 decline, I continue to be focused on minimizing losses, especially with funds for our short term expense needs. 

For now, I am less confident about the economy than in 2007, the last time our savings were this high.    So we continue to hunker down, keep a high proportion of liquid assets, and continue to live frugally.  Although we may miss out on some gains if the market continues to advance, I will sleep better at night than if we had more invested in equities.

For more on The Practice of Personal Finance, check back every  Wednesday for a new segment.


This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

The Wealth Builder Carnival #117

Welcome to the one hundred seventeenth edition of The Wealth Builder Carnival. The purpose of this carnival is to collect articles from the blogosphere on building, preserving and keeping enough wealth for a comfortable retirement. For reference, I have tried to keep the carnival content tightly focused on wealth building and did not include submissions that were off topic. For reading convenience, the posts are listed with a brief summary or comment by the submitter and organized into seven categories: Earning, Insuring and Protecting, Investing, Living Frugally, Retiring, Saving and Taxes.

And now on to the Carnival.

Earning

Peter Buscemi presents Developing a Unique Selling Proposition posted at Four Quadrant, saying, "The creation of a unique selling proposition is one of the most difficult tasks an organization will address so leverage a value proposition example for best results."

Chris Price presents Five Ways for Teens to Make Money during Summer 2013 posted at Earn Money in Pajamas, saying, "It is never too early to start building up a nest egg. Some of the most successful people around are people who started making and saving money early in life. Here are some tips for teens to make some money to start building wealth in the coming summer months."

Susan Wowe presents How to Make Money and Save Money With Instagram posted at Online Business - Make Money Online, saying, "Do you know you can make money and save money by using Instagram on your smart phone? This article is contributed by a Instagram specialist who shares useful tips to make extra money with Instagram while you enjoy your photographing."

Investing

Dividends4Life presents 18 Stocks Growing Their Cash Dividends posted at Dividend Growth Stocks, saying, "When people learn that I am an income investor, the reaction is often a desire to discuss high-yield investments. Many people commonly confuse income investing with high-yield investing. The two are not the same. High-yield investing often carries a greater degree of risk than I am willing to accept. For me, I will continue to focus on high-quality dividend stocks at lower, but growing, yields..."

Michael presents The Lesser Known Canadian Dividend All-Stars posted at Dividend Growth Investing & Retirement, saying, "I created a list of Canadian companies that have increased their dividend for more than 5 consecutive years in a row. In this article I go over some of the lesser known companies on list and explain why they aren't included in some of the more well know lists such as the dividend aristocrats and dividend achiever lists."

Jason Hull presents The Tarrant County Texas Tax Sale posted at Hull Financial Planning, saying, "It is possible to purchase properties at a discount through tax liens or a tax deed sale. This article examines the process of purchasing a tax deed from Tarrant County, Texas, where Fort Worth is located."

Living Frugally

Maryanne Williams presents 20 Creative Ways to Save Money for a Family Vacation posted at Backup Care, saying, "These 20 savings tips can add up big time, helping you to reach your travel goals before you know it."

Kevin Giffin presents How to Shop for School Clothes on a Budget posted at Summer Nanny, saying, "Shopping for school clothes doesn’t have to sink you into debt. Your kids can wear trendy and unique outfits on a budget, as long as you’re willing to work at finding them."

Bryan presents What Is A Good Credit Score? posted at Gajizmo, saying, "With the economy making a strong comeback (despite not everyone being able to feel it), home and car buying, as well as any other credit or loan-based purchasing, will likely increase as time goes on. This is the best time for families to take the appropriate steps to improve their credit scores. But what is a good credit score? What factors are taken into consideration? This article answers these questions and a lot of others you may have about your credit score and history."

Retiring

Super Saver presents Too Old to Rehire and Too Young to Retire posted at My Wealth Buillder, saying, "Unemployed people over 50 are often considered over qualified or too highly paid when apply for jobs. In addition, their 25 years of work experience is not an advantage versus applicants who have just graduated from college. Unfortunately, most of the unemployed over 50 do not yet qualify for retirement with pensions and/or retiree health insurance."

Taxes

John Schmoll presents 4 Simple Ways to Make Filing Taxes Easier Every Year posted at Frugal Rules, saying, "Very few people enjoy doing and filing their taxes. However, with a few simple steps you can make the process easier every year."


That concludes this edition. Submit your blog article to the next edition of The Wealth Builder Carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: the wealth builder carnival, blog carnival.  

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, earning, insuring, investing, living, retiring, saving, tax, or wealth building advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

ETFs for China Investing

Forget FXI: Try These Three China ETFs Instead offers three ETFs to consider instead of the FTSE China 25 index which is primarily focused on financials.   The three ETFs are:

Guggenheim China Small Cap ETF (HAO)

Global X China Consumer ETF (CHIQ)

Market Vectors China A-Shares ETF (PEK)

I currently own some shares of FXI, which haven't done very well since the Great Recession began.  I am planning to buy some shares of HAO, which is a commission free ETF at one of the brokerages I use.  Since it is commission free I can slowly build my position and take advantage of market dips to dollar cost average down.

For more on Strategies and Plans, check back every Monday  for a new segment.


This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC