Thursday, June 29, 2006

Infinite Returns

There's an easy way to have infinite returns on your investments. Your percentage gain is simply your gain over your cost. Since your gain is limited by how a stock performs, another way to increase your return is to lower your cost. If you could get your cost down to zero, then your return would be infinite, since gain divided by zero is infinity(Don't get me started on calculus). How can you possibly get your cost of a stock to zero? It's really quite simple. Let's say you buy 100 shares of stock and over time it goes up by 5%. You could sell all 100 shares and take a gain of 5%, or you could sell 95 shares and get back all of the money you started with. In that case, your investment cost you nothing, so when you sell those remaining 5 shares in the future, you will have a gain with no cost. In this simple example, I might sell 97 shares so that taxes and commissions are paid for as well. Obviously, as your gains increase, the percentage of shares you have to sell to get your money back goes down as well. Lately I've been buying options that go up so fast that I am able to make about 20% on my initial investment by selling only 2/3 of the calls I bought. So instead of taking the 80% gain on my entire investment, I take a modest gain (20%) and get the rest of my options for free. I've been able to pull this kind of turn around in as little as a week. Just imagine if you could do this repeatedly and get free call options every week.

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