With the stock market at historic highs and volatility close to all-time lows, some investors are considering taking their gains in their stock and ETF positions and buying long-term call options called Leaps (Long-term Equity Anticipation Securities).
Leaps expire 12 to 28 months out and can reduce losses when the inevitable correction comes, and, if the stock price rises enough, they also allow for buyers to participate in the appreciation.
Options trading isn’t for everyone; even a seemingly prudent strategy can go wrong, with investors losing everything that they initially invested, or more. With that in mind, the Leaps strategy can be a less-costly alternative to buying “put” options—a bet that a stock will decline—as insurance on a stock.
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How to apply for Social Security
What is the social security retirement age?
The age when you can claim your
full Social Security benefit varies
depending on your birth year. The
full retirement age is 65 for those
born in 1937 or earlier, 66 for baby
boomers born between 1943 and
1954, and 67 for people born in 1960
or later. Those born in 1938 to 1942
and 1955 to 1959 have an even more
specific retirement age. For example,
the full retirement age is 65 and 10
months for people born in 1942 and 66 and 4 months for boomers with birth dates in 1956.
Those who sign up for Social Security between age 62 and their full retirement age get smaller monthly payments, while delaying claiming can increase your benefit up until age 70. "Just because you are 62, you don't necessarily have to take it," says Rianka Dorsainvil, founder and president of Your Greatest Contribution in Lanham, Maryland. "Each year you delay taking Social Security from your full retirement age up until age 70, your benefit increases by 8% each year."
Let’s use the example of Yum Brands (YUM). Consider an investor who buys the $97.5 strike calls expiring January 2021 for $900 for a 100-share contract, or $9 a share (Leaps, incidentally, generally expire only in January and June).
In this case, buyers participate in any price appreciation gain above $106.5 (97.5 plus 9) over the next year. That would be a good result for a payment of less than 10% of the full cost of the stock.
How it works
If the stock declines, the call buyer’s loss is limited to the initial premium paid. Of course, if the stock is stagnant, the cost of the option might be more than any small profit or loss the stock incurred.
And keep in mind that with Leaps, as with any option, buyers forgo dividends, in this instance about 1.7%.
“That makes Leaps more attractive to stocks that pay little or no dividend, and less attractive to stocks with high yields,” says Interactive Brokers chief options strategist Steve Sosnick.
How much social security will I get?
Leaps can be more difficult to price accurately, even for sophisticated investors, than short-term options. Leaps also tend to have higher implied-volatility levels embedded in them, and the trading activity and open interest (or contracts outstanding) can be low or even nonexistent.
“The spreads are significantly wider in the options than the stock,” Mr. Sosnick says. “Buyers should use limit orders and try to buy them inside the posted asking price.”
Pricing challenge
You can work and collect Social Security benefits at the same time. However, if you haven't reached your full retirement age, part or all of your Social Security payments could be temporarily withheld. Social Security beneficiaries who are younger than their full retirement age can earn up to $18,240 in 2020 before they will lose one benefit dollar for each $2 earned above the limit.
The earnings limit jumps to $48,600 for those who turn their full retirement age in 2020, and the penalty decreases to $1 withheld for every $3 earned above the limit. However, once you turn your full retirement age, your benefit will be recalculated to give you credit for your withheld benefit and continued earnings. You can earn any amount without being subject to Social Security withholding after you turn your full retirement age.
What is the social security wage limit?
Social Security payments to retired workers averaged $1,478 per month in November 2019. The average spousal payment is about half that amount, or $773. Widows and widowers receive survivor's payments worth an average of $1,199 monthly.
What is the average social security benefit?
The maximum possible Social Security benefit changes depending on the age you retire. A worker who retires at full retirement age in 2020 could be eligible for up to $3,011 per month. The maximum benefit declines if you start collecting payments before your full retirement age, while someone who delays retirement until age 70 can collect a higher monthly benefit.
To qualify for these large payments, you need to maintain a high income throughout a career of 35 years or more. "Those who receive the maximum benefit possible are those who've earned at or above the highest taxable wage base all of the years that are used in the benefit calculation," says William Meyer, founder and managing principal of Social Security Solutions, a company that analyzes Social Security claiming strategies. "That person would have exceeded the maximum taxable earnings in each of the highest
35 years."
What is the maximum social security benefit?
Many U.S. citizens with a driver's license or state-issued identification card can use their My Social Security account to apply for a replacement Social Security card online. You can also fill out a paper application and mail it in or take it to your local Social Security office.
How do I get a new social security card?
Most Americans contribute 6.2% of their earnings to the Social Security system, and employers pay a matching amount. Those who are self-employed pay 12.4% of their income into Social Security. Workers who have sufficiently paid into the system can collect retirement benefits beginning at age 62 or older. You may also be eligible to collect benefits if you become disabled, and your family members might qualify for survivor's payments after you pass away.
How does social security work?
If you have a medical condition that significantly limits your ability to work and perform basic activities such as walking or remembering, you might qualify for Social Security disability payments. Be prepared to provide medical records documenting your condition and why it prevents you from working. Social Security disability payments won't start until six months after your disability began. There's also a several-month wait time to process disability applications.
How do I qualify for social security disability?
Social Security beneficiaries are required to sign up for electronic payments. Social Security benefits can be directly deposited into a bank or credit union account or loaded onto a prepaid debit card. The payment dates vary based on your date of birth. If your birthday falls on or before the tenth of the month, you will receive your payment on the second Wednesday of each month. Those born between the 11th and 20th get their payments on the third Wednesday, and people born late in the month get their direct deposits on the fourth Wednesday.
When will I receive my social security check?
Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows, according to Morningstar. Talking about sustainability “is a way to build better relationships with clients. And it’s material to returns,” says Catherine Banat, managing director of responsible investing at RBC Global Asset Management. One beneficiary will be impact investing strategies—where people seek specific outcomes from their portfolios—many of which are aligned with the U.N. Sustainable Development Goals.
In 2019, according to the Global Impact Investing Network, assets in this market totaled around $500 billion, based on surveys with 1,300 impact investors. That will happen in mutual funds too: According to Morningstar, the largest impact funds include the $4.8 billion TIAA-CREF Social Choice Bond (TSBBX), the $2.4 billion Community Reinvestment Act Qualified Investment (CRAIX), the $1.2 billion Domini Impact International Equity (DOMIX), and the $1.2 billion AB Sustainable Global Thematic (ALTFX).
12. Flows will keep surging
Particularly of people who are great at building computer models and handling large data sets, and who are thick-skinned when dealing with corporate executives and officers. “There’s a global hiring war in ESG right now,” says Manulife’s Chew.
13. Expect more hiring in the sustainability industry...
