Episode 12: Timeless Tactics for Generational Wealth

On today’s show:

  • Jack’s Wrestling Story — why it’s important for your trading life — and your family’s!
  • Why Jack teaches classic, timeless trading instead of new, flash in the pan stuff
  • Jack’s terrible experience as a “private client” for a high end bank — and the key lesson it taught him.
  • The treasure you might already own — and not even realize it!
  • FREE Options play… complete with strike and expiration!

When Jack visits his grandkids, they are so hyped up, the first thing they want to do is wrestle.

So they all wrestle. It’s 3 grandkids on 1 grandpa. (ages 12, 8 and 4)

Each wrestler has to have a wrestler name: Jumpin Jack Flash, Norah Ninja Spidermonkey Grace, The Atomic Acorn — and Jack is Papasaurus Rex.

After they’re all worn out, they sit down for lesson time. And what does Jack teach them? All about stocks and investing.

His 12 year old grandson is in love with the idea that he can buy a stock and get paid to own it without doing any more work.

When they’re looking at stocks together, Little Jack asks his grandpa: “How much does that one pay you to own it?” Jack LOVES that question.

They started doing this back when Little Jack was 8 years old (he’s 12 now).

Little Jack owns AFLAC stock because he sees it when they watch college football games together.

He may not understand reinsurance, but he understands the dividend.

Norah, who is now 8 – is starting to understand stocks. Oaks, who is 4 doesn’t understand it at all, but with a grandpa like Jack, he’ll be a pro in due time.

Jack doesn’t want his grandkids to grow up financially ignorant. It’s not something you are taught in school.

Norman tells us that before the age of 7, the subconscious mind of children doesn’t edit anything coming in.

So it’s the perfect time to teach them things like this. It’s important to lay the groundwork with lessons about taking responsibility, always learning new things, and teaching them that “stocks are not gambling.”

But it’s important to deliver it in a fun way — it could be after wrestling, like Jack does. Or it could even be talking over ice cream or dessert.

The point is that what you teach them at a young age leaves lasting impression.

Another important lesson is sacrifice: If Little Jack buys some Apple stock, he means he can’t buy candy instead. Teaching them these lessons now builds up those muscles of delayed gratification, which is a huge life skill.

Norman joked that he could lend Little Jack some money if he really wants to buy the candy.

Jack said he’s already teaching him to sell covered calls so he can earn weekly income and afford his stock AND his candy by generating weekly income on stocks he already owns.

Jack tells us that he considers income trading (selling options) this the best, safest way to make money. He tells us that when you do income trading, the only way to mess it up is to stop doing it.

You just have to sell the covered calls on a stock you own and keep an eye on it. If you get called out, you start selling puts, collect that income until you get assigned and repeat the process when you get assigned the stock.

This stuff is so easy, Jack feels like he has a responsibility to teach the next generation.

Norman then told us that everyone has a moment in their lives as a young person coming of age when they realize they have to fend for themselves. Generating income from stocks you own is an invaluable life skill that could come in handy for times like this.

Moving on, Norman told us that he heard a story about Jack’s experience as a “private client” at a bank. It sounds exclusive, but they did nothing for him. All it means is they charge you more fees while holding on to your money and doing nothing to grow it.

Finally Jack got tired of waiting for them to do something with his money, so he took it out and put it into TBills. The very next day he got a call from his banker: “Hey, I got a CD you can put your money into!”

Too late! Jack learned his lesson:

Nobody is looking out for you but you – and no one is looking out for your kids or grandkids but you.
THAT’S WHY LEARNING THIS STUFF IS IMPORTANT!

Schwab’s biggest profit center is between the customers they pay 0% interest to for holding their money and the people and institutions they lend that money out a higher interest rate.

Jack saw a report that says the American public has missed out on something like $40 billion in interest in a given year by giving their money to the bank and earning 0% on it.

Norman says:

Sometimes people just accept that from the bank because they think growing your money is complicated. 9 out of 10 people he talks too complicate matters too much. It can be as simple as buying Tbills. Or you can do covered calls and naked puts like Jack is always telling us.

He tells us that 90% of what you do should be simple. If you want to get fancy, do that on the side with a small portion of your total holdings. But whatever you do, don’t give your money to a bank and let them pay you 0% interest!

Norman recommended a short book: “Acres of Diamonds” – a story of a farmer who sells his land to go to faraway places and search for diamonds in distant lands. He traveled all over the world only to later discover that his original plot of land had diamonds under the soil all along.

The point being that we often ALREADY have riches under our feet, if we would only stop and learn to harvest them.

Jack reiterated that he believes income trading is one of the easiest ways to make money and it’s extremely hard to screw up.

Speaking of Acres of Diamonds:

After working with Jack, one of his clients discovered he already owned stocks that would give him $1600 per month… without changing anything about the stocks he already had!

What stocks do you own that you could start doing this with?

Jack urges us how we can start doing this immediately:

  • Look at the stocks you own
  • Check out the options chain for them
  • Sell a call 7-10% higher than current price
  • The option should expire at the end of the week (so you’re in the trade for only 3 days)
  • repeat that every every week and you can earn 5% every week!

After all this talk about covered calls, someone in the audience asked: What is a covered call?

Norman explained it: Let’s say you own 100 shares of a stock.

A covered call is when you sell someone the right to buy that stock from you at an agreed-upon price by an agreed-upon date.

You get paid right away and if the stock doesn’t hit that price by the expiration date, they lose their money. You keep what they paid you AND you keep the cash they paid you.

Then you just repeat that every week.

If the stock happens to reach that agreed-upon price by the agreed-upon date, then you will lose the stock.

But if you did it right, it will be at a profit. (CAUTION: Never sell a covered call that is below your cost basis for a stock.)

Norman asked how a regular, everyday person can scale this. In other words, if I start with 100 shares, I can only sell 1 call option. (because 1 option controls 100 shares) So how do I grow this so I can start raking in the big bucks?

Jack says the key is to reinvest the cash you make from covered calls and buy more shares. Once you do that and you own enough shares to sell 5, 10 or more covered calls against 500 or 1000 shares that you own, that’s when you will really start “cooking with peanut oil!”

Someone in the audience asked: “What is the best day to buy a covered call?”

Jack reiterated: WE ARE NOT buying options. We are SELLING options.

Big difference! When you BUY an option, you are acting like a gambler going into a casino. You might win once in a while, but the house wins most of the time. That’s how they afford this giant palaces.

But when you SELL an option, you are turning the tables and BECOMING THE HOUSE! The odds are automatically stacked in your favor!

The wins are smaller (you can early about 4-6% per week), but much more consistent. This is how wealth is built!

But to answer the question: there is no best day to sell options. Jack usually does it on a Monday for options that expire in 30-40 days. Or on a Tuesday for options that expire that Friday.

Imagine that! You sell something on a Tuesday, by Friday it expires worthless and you keep all the cash!

Someone in the audience asked: “How/when do you close out the position?”

Jack’s answer: I never close out the position. I let them expire worthless. That’s the goal. The only time I might close out a position is if it’s moving against me, I might buy back the put or call option I sold.

I take a small loss and sell another one the following week.

One important thing to keep in mind: You always want to trade in the same direction as the broad market.

And you also want to make sure that the stock you are selling options on is trading in the same direction as the broad market. Pull up a daily chart, look at the trend line.

Watch this past episode of Instant Income Ideas to find out how Jack finds trending stocks.

And read/watch this blog post to discover how Jack finds out which direction the broad market is trending in.

This didn’t make it into the show, but two books Jack recommends for kids:

  • “How To Babysit a Grandpa”
  • “Messed Up Market” (part of the Tuttle Twins series of books)

And finally — here is this week’s FREE options play:

We’re selling a Naked Put. You get paid the second your trade is executed.

Fair warning: Jack is not taking this trade. He’s offering it up as an example.

ARM is the ticker. It’s currently at $52.96. If you sell naked puts on margin, you only have to put in 20% on the underlying stock. (as stated in a previous show, even this is a reflection of how low-risk the brokerages believe this kind of a trade is)

Here’s the play:

Sell to Open
ARM Nov 10 47 Put for $1.05
credit.

Jack’s Secret Weapon:

Oh and if you stuck around after the show, Jack revealed the secret weapon that powers almost all of his trades. → → If you missed it, click here to check it out.


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— The Jack Carter Trading Team

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