How to best sell down when retired - and options are not possible

[kcveins]

So now I have been trying this retirement lark for a few months. And the stock marked decided to take a dip.

In case it can help anyone or start a nice discussion on strategies;

What I ended up doing so far:
- Sold a few shares in January and February - enough to live on and to start building a buffer against stock market dips
- In Mars I withdrew a smaller amount using a line of credit at my broker - smaller since had a small cash buffer
- In April the share price has to climb above $736 for me to sell shares. If not I use my line of credit

My guidance for when to sell a few or use my own buffer or the line of credit is simple:
- If share price matches MA(50) or higher sell a few shares - enough to live on and to grow my cash buffer
- If share price low and have a cash buffer draw from that
- If no cash and a low share price use line of credit
- Last resort: If all other options exhausted sell a few shares but try to sell as few as possible

Nice to see that the Martian economy allows for a line of credit

 

[Christine69420]

Forgot one important point when describing my strategy. Too late to edit so reposting here with edits about fixed income:

In case it can help anyone or start a nice discussion on strategies;

What I ended up doing so far:

- Sold a few shares in January and February - enough to live on and to start building a buffer against stock market dips
- In March I withdrew a smaller amount using a line of credit at my broker - smaller since had a small cash buffer
- In April the share price has to climb above $736 for me to sell shares. If not I use my line of credit

My guidance for when to sell a few or use my own buffer or the line of credit is simple:
- I have a separate small fixed income giving me a monthly allowance covering 70% of my barebone expenses
- If share price matches MA(50) or higher sell a few shares - enough to live on and to grow my cash buffer
- If share price low and have a cash buffer draw from that
- If no cash and a low share price use line of credit
- Last resort: If all other options exhausted sell a few shares but try to sell as few as possible

And about the line of credit - never plan to let it grow above 5% of investments.

So now I have been trying this retirement lark for a few months. And the stock marked decided to take a dip.

In case it can help anyone or start a nice discussion on strategies;

What I ended up doing so far:
- Sold a few shares in January and February - enough to live on and to start building a buffer against stock market dips
- In Mars I withdrew a smaller amount using a line of credit at my broker - smaller since had a small cash buffer
- In April the share price has to climb above $736 for me to sell shares. If not I use my line of credit

My guidance for when to sell a few or use my own buffer or the line of credit is simple:
- If share price matches MA(50) or higher sell a few shares - enough to live on and to grow my cash buffer
- If share price low and have a cash buffer draw from that
- If no cash and a low share price use line of credit
- Last resort: If all other options exhausted sell a few shares but try to sell as few as possible

 

[SilverGrey]

Thank you, MABMAB for that very helpful answer!

Borrow on margin? Sure if you want to. I like the debt free peace of mind. Imagine if you did this when stock price was $900 and here we are at 660ish. I'd say emotional turmoil not for me in early retirement. I'm a fan of Elon but certainly don't mimic my investing behaviors after his.

I'm far from Elon's investment account. But I sleep well with using some margin. For now I limit myself to a single digit percentage of my net worth. Just checked - it's 1.45% today. When the share price rise I will follow good advice and build up a cash buffer.

About risk - I would think the risk level you are comfortable with depends on several factors. For me being single I probably can handle more risk than people with families. And middle aged me would survive going back to work better than older people. And thanks to Elon I now have much more each month than when I was working. And much more than I need. So while I can afford many of my wants they can easily enough be scaled back if necessary.

 

[SebastianR]

Do you have property? I'm toying with the idea of taking a loan out against my real-estate. Loan conditions in DK are extremely good right now and I wouldn't need to sell a thing... (by coincidence - is there any Dane here that did something similar? Possibly with a reverse mortgage?)

 

[dmvevguy]

I'm essentially living off covered call premiums for the past 4 months. In the US it was permitted in 2020 to withdraw up to $100k from retirement funds, so I sold long dated covered calls at very high strikes and pulled the cash from my IRA(retirement account). Selling January 2023 $1300c options means I may be forced to sell some shares at $1300 within the next year and half, but I'm fine with that if it happens. $1300 share price represents a $1T+ market cap which was about my medium term goal to sell half my shares anyway.

This one time operation netted me about $18-26k per contract and if they execute I'll simply have $130k cash per contract when forced to sell any 100 share bundles. Do the math. It is absolutely worth the time and effort to research selling covered calls when planning to sell. There is no down side if you're selling them at the right time, and we may be heading back to all-time highs soon.

Selling $1500 March 2023 covered calls net you a premium of $11k as of Thursday, and probably closer to $16k if the share price of TSLA gets back around $800.

If the timing worked out and you had enough shares to start with, you could live off the covered call premiums alone for years and not sell a single share! Switch brokers, watch a bunch of YouTube videos, ask for advice here. It's not intimidating at all once you figure it out.

I'm thinking about doing as part of my early retirement. Have almost 1200 shares, so may try this out with a 2 or 3 hundred shares. You don't get the actual premiums until after expiration or if the buyer exercises, right? Can the premium change and fluctuate over time? I.e., if it was netting you 18-26k per contract, but now the stock price is lower I saw the premium was only 13k, so does that mean you'll only get that amount as it fluctuates over time? I'd assume the premium will go higher once time runs out and also if the contract goes ITM, right?

 

[dmvevguy]

I'm essentially living off covered call premiums for the past 4 months. In the US it was permitted in 2020 to withdraw up to $100k from retirement funds, so I sold long dated covered calls at very high strikes and pulled the cash from my IRA(retirement account). Selling January 2023 $1300c options means I may be forced to sell some shares at $1300 within the next year and half, but I'm fine with that if it happens. $1300 share price represents a $1T+ market cap which was about my medium term goal to sell half my shares anyway.

This one time operation netted me about $18-26k per contract and if they execute I'll simply have $130k cash per contract when forced to sell any 100 share bundles. Do the math. It is absolutely worth the time and effort to research selling covered calls when planning to sell. There is no down side if you're selling them at the right time, and we may be heading back to all-time highs soon.

Selling $1500 March 2023 covered calls net you a premium of $11k as of Thursday, and probably closer to $16k if the share price of TSLA gets back around $800.

If the timing worked out and you had enough shares to start with, you could live off the covered call premiums alone for years and not sell a single share! Switch brokers, watch a bunch of YouTube videos, ask for advice here. It's not intimidating at all once you figure it out.

I'm thinking about doing as part of my early retirement esp after earnings next week. Hoping TSLA gets back up to 800s. Have almost 1200 shares, so may try this out with a 2 or 3 hundred shares. You don't get the actual premiums until after expiration or if the buyer exercises, right? Can the premium change and fluctuate over time? I.e., if it was netting you 18-26k per contract at the time you wrote this message, but now the stock price is lower I saw the premium was only 16k, so does that mean you'll only get that amount as it fluctuates over time? I'd assume the premium will go higher once time runs out and also if the contract goes ITM, right? I don't know how I feel about the idea waiting until March 2023, but at least I know I'm going to win-win either way .

 

[Christine69420]

Hi Dmvevguy!

In the first post OP wrote:

On my investment account I cannot use options. So please don't suggest that.

I'm thinking about doing as part of my early retirement esp after earnings next week. Hoping TSLA gets back up to 800s. Have almost 1200 shares, so may try this out with a 2 or 3 hundred shares. You don't get the actual premiums until after expiration or if the buyer exercises, right? Can the premium change and fluctuate over time? I.e., if it was netting you 18-26k per contract at the time you wrote this message, but now the stock price is lower I saw the premium was only 16k, so does that mean you'll only get that amount as it fluctuates over time? I'd assume the premium will go higher once time runs out and also if the contract goes ITM, right? I don't know how I feel about the idea waiting until March 2023, but at least I know I'm going to win-win either way .

So perhaps your post is more suited in one of the many options threads - for instance this one seem to be popular:

Applying options strategy 'the wheel' to TSLA

 

[dmvevguy]

Hi Dmvevguy!

In the first post OP wrote:





So perhaps your post is more suited in one of the many options threads - for instance this one seem to be popular:

Applying options strategy 'the wheel' to TSLA

Thanks @Christine600! I was responding to someone else, specifically, but got my answers thankfully from @TheTalkingMule . By far, I think his approach is really the best. Best to use a brokerage that allows covered calls - best strategy by far holding TSLA stock. Hands down!

 

[Mengy]

By far, I think his approach is really the best. Best to use a brokerage that allows covered calls - best strategy by far holding TSLA stock. Hands down!

I'd agree as long as someone is willing to sell lots in 100 share increments such calls require.

However, if someone is looking to minimize shares sold per year, say their expenses are low enough they only want to sell a couple dozen shares per year, in such a case covered calls would not be ideal due to the risk of selling 100 shares at a time.

If someone doesn't mind large tax bills then go covered calls, if someone is living frugally and wants more control of shares sold then a gradual trickle of selling off would be preferable in my opinion.

 

[mrmage]

I’ve been musing over this question for awhile, and my conclusion was that unrealized gains are more or less the same as income.

Some people like to write calls and puts to generate income to ensure that they “earn” enough for expenses. Because I view unrealized gains from LEAPs, stocks, etc similar to income, I focus on longer term strategies and don’t feel the need to have realized income to pay for expenses.

By borrowing against assets (for me 5% is comfortable), I am free to invest the best way I know how. I’m confident that my Tesla investments will beat the interest rate on my margin account. If I’m ever wrong for a year or two, it’s a 2 to 4% hit, but hardly a catastrophe.

 

[Christine69420]

IMO, it would better to sell small amounts of TSLA as you go than to raise the same amount of money trading options. That's because TSLA still has most of its growth in front of it and you have to risk more shares to raise the same amount of money. If trading options had higher returns than buying and holding then you should never buy the stock, just trade the options. But that's not how you reliably grow your capital.

One thing I learned long ago is that you should not base the wisdom of a certain strategy upon whether it's been working so far. The nature of options is that it's a game of statistics and you will never get a statistically significant sample by analyzing your own trading unless you are a more prolific trader than I can imagine. It's necessary to actually understand the underlying odds, not go by what seems to work.