I have had shares since my parents bought some for me when I was little. Current portfolio (SGB, TAH, SUN) is worth about $30k. Has been as high as $50K.
Have approx $20K cash.
No debt (Just a credit card I use for personal and business use and control pretty well).
I have trade ETO previously and am interested in other products such as ASX CFDs, ETOs, futures and perhaps Minis.
Am thinking of diving into a $50K Margin loan @ ~10.5%. This would mean max weekly interest of ~$100.
I would look at jumping into say 5 stocks at $10K each or more practically 1,000 units each.
I would then consider setting stops, or for added security purchasing puts on those shares.
I would also consider writing calls over the long stocks to offset the cost of the puts.
-interest rates are higher now than 12 months ago
-risk of margin call (minimised by stop losses or purchasing puts)
-need capital growth & Dividends to be higher than cost of interest, puts and brokerage
-would be hard to purchase the 1000 required units (for the puts and calls) on high price stocked. Stock price would need to be <$10 otherwise my put protection would be over hedged and writing calls would be partially naked
+'forces' me to save (need to pay the loan off)
+brokerage, puts, interest is tax deductible
+profit from calls would offset cost of puts
I would look at using mainly technical analysis for purchasing shares.
When share price moved up, i could get exercised on the call for a profit and sell the put for some residual value. Or I could roll the call and put.
If share price dropped, I would exercise the put, or sell the stock and put seperately.
After one of those events I would move to another stock.
A couple of questions:
-Assuming looking to purchase a $50K portfolio and a LVR on all shares of 75%. Does that mean I would only need to borrow $37,500 and would need to provide the other $12,500 myself? Thus my weekly interest would only be ~$75.
-I assume the margin loan is like a line of credit fr purchasing shares. I only pay interest on the amount I actually do draw down correct?
-With my put protection stratergy I should be 100% protected from a margin call? Do some lenders then give me a 100% LVR if I protect with puts? If so, which lenders?
-Any recomendations on lenders which would allow this kind of stratergy?
-Has anyone tried this or a similar stratergy? Any success? failures? stories?
-Am I completley nuts in looking to borrow to invest in an overall bear market?
-Should I look at paying off the loan? or simply pay the interest?
I am aware that this kind fo stratergy is more of a long term one. I am not expecting any 'home runs'. But if I can ferret away a few bucks a week and own a $50,000 portfolio I'd be quite happy.
Any feedback would be greatly appreciated.