24% returns

The long term stock market average return is around 12% annually. Warren Buffett has returned around 22% since 1966. What am I thinking I can do?

24%, baby. That’s my target.

Now, I have one huge advantage. I will be assuming that my trading will be taking place in an IRA, so I do not have tax considerations to worry about.
However, I will still take commissions into account, and NOT enter any trades which would violate IRS wash rules. Thus, for a very rough taxable account comparison, take my returns and knock off a third.

My fictitious account will be assumed to be held at Scottrade. They offer no-fee IRAs; no annual fee, no inactivity fee, no minimum balance fees, etc. Their commissions are $7 for stock and $7+$1.25/contract for option trades, with a $17 exercise fee.
Although you can consider this a plug for Scottrade (I do have a real life IRA there and have had no issues with their customer service or handling) I have transferred a brokerage account to Zecco instead – still no fees but the commission schedule is much more aggressive – including 10 free stocks trades a month! So – do your own research but PLEASE take fees and transaction costs seriously in your own life.

Back to 24%. Where do I get off claiming that is doable?
First, let’s look at what it gets me. With a 24% return, every 39 months my balance doubles. If I start with $100,000 then it will take just under 11 years to get me to $1 million. Now, I don’t think you can plan on retiring on a million anymore – we’re living longer and medical breakthroughs are occurring faster – so I’d say you have to plan on at living to at least 100 these days. With inflation at 3% (and I’d argue its higher than that) the cost of living will double every 24 years. But $1M is a nice round target to shoot for.

Nice, Trond. But HOW??
Options – covered calls, to be precise. I noticed a few years ago that the premium of slightly out-of the money covered calls tends to be anywhere from 1 to 3% per month. Now, most stocks I own are only in multiples of $1, 2, or 3 thousand dollars. A 2% return on $1000 is a measly $20. But if you do the math it adds up mighty quickly. The biggest obstacle is if you pick a stock and it tanks immediately after buying – you have the choice of selling lower strike options and probably selling at a lower price, or selling the higher strike further out and accepting a much lower yield.

I will be aiming to return about 2% a month -- technically, at 1.809% a month, I would hit my 24% annual returns on the dot – but I like round numbers. I will start with $100,000 and post my trades immediately after deciding on them – I will log onto my brokerage account and use the current ask price for the stocks and the current bid price for the covered call.
Let the games begin!

Regards,
Trond