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december 2019
SidE hUstLes Gig EcoNomy iN thE
The essential guide to kickstarting your second income. p. 13
14 These Guys Can Kick Start any Side Hustle
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20 Side Hustle Success Stories
27 Six Successful Side Hustles
31 Trading on the Side
34 Uber and Lyft: The Road to Profitability
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editor-in-chief ed mckinley managing editor yesenia duran technical editor mike rechenthin contributing editor vonetta logan assistant editor mike reddy creative director jacqueline cantu The Luckbox Holiday Gift Guide.
P. 37
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37 The Luckbox Holiday Gift Guide
FINANCIAL FITNESS
44 Shredded on the Side POKER
45 Vocation or Avocation? TRADER
46 Meet Michael Sartain
49 Sector Ignorance 50 Side-Hustle Stocks
MACRO VIEW
54 Take a Look at the Krona
61 (Covered) Call to Action
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FAKE FINANCIAL NEWS
LUCKBOX OF THE MONTH
62 Zeroing Out Those Utility Bills
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56 CSI: Investing Thrift Savings Plans
63 A Covered Call for Any Bias
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CALENDAR
10 Benefits with Friends
47 Year-End Optimism
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64 Donuts to Dollars
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luckbox magazine content is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities and futures can involve high risk and the loss of any funds invested. luckbox magazine, a brand of tastytrade, Inc., does not provide investment or financial advice or make investment recommendations through its content, financial programming or otherwise. The information provided in luckbox magazine may not be appropriate for all individuals, and is provided without respect to any individual’s financial sophistication, financial situation, investing time horizon or risk tolerance. luckbox magazine and tastytrade are not in the business of executing securities or futures transactions, nor do they direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. luckbox magazine and tastytrade are not licensed financial advisers, registered investment advisers, or registered broker-dealers. Options, futures and futures options are not suitable for all investors. Transaction costs (commissions and other fees) are important factors and should be considered when evaluating any securities or futures transaction or trade. For simplicity, the examples and illustrations in these articles may not include transaction costs. Nothing contained in this magazine constitutes a solicitation, recommendation, endorsement, promotion or offer by tastytrade, or any of its subsidiaries, affiliates or assigns. While luckbox magazine and tastytrade believe that the information contained in luckbox magazine is reliable and make efforts to assure its accuracy, the publisher disclaims responsibility for opinions and representation of facts contained herein. Active investing is not easy, so be careful out there!
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PHOTOGRAPH: GARRETT ROODBERGEN
trends
contributing photographer garrett roodbergen
luckbox | december 2019
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HUSTLE & GROW You play the guitar on the MTV That ain’t workin’ that’s the way you do it Money for nothin’ and your chicks for free Now that ain’t workin’ that’s the way you do it Lemme tell ya, them guys ain’t dumb Maybe get a blister on your little finger Maybe get a blister on your thumb We got to install microwave ovens, custom kitchen deliveries We got to move these refrigerators, we gotta move these color TVs —Money for Nothin, Dire Straits (1985) We can’t all be rock stars or the children of politicians. So despite continued economic growth and record low levels of unemployment, more workers are turning to side hustles for a second income. By some estimates, 60 million Americans have joined the Gig Economy. Some may feel dire economic straits leave them little choice. Others simply succumb to the turnkey temptation of driving for Uber or Lyft. A few may even find themselves installing microwave ovens or moving color TVs for TaskRabbit or Takl. Every issue of Luckbox focuses on a timely topic, and the current side-hustle theme has been the most gratifying to date. The editorial team has truly enjoyed the challenge of finding and presenting actionable, inspiring information to empower entrepreneurial readers as they identify and evaluate opportunities to pursue life and money with the help of probability. Side gig gurus Chris Guillebeau and Nick Loper kick off the coverage, sharing insights
thinking inside the Luckbox Luckbox is dedicated to helping hardworking, active investors achieve skill-derived, outlier results. How?
6
into the gig economy that they’ve gathered in more than 1,500 interviews with successful side hustlers (p. 14). Their step-by-step instructions can help readers select the right side gig, navigate the startup and move toward scalability. Putting this issue together, the staff spoke with dozens of uber-successful side hustlers who made their way to big paydays without Uber (p. 20). The upshot? It seems undeniable that nearly anyone can begin developing a side hustle income in a matter of weeks by using the tips and resources provided in this issue. Observers who have mentored, advised and invested in startups and early-stage companies may find themselves startled by the simplicity of so many of the side hustles described in this issue. Most of these parttime gigs generate their first dollar within weeks, and they do it without business plans, incubators, pitch decks or funding from friends and family. Rather than the opium of OPM, side hustlers’ addiction is to economic
1 tune out the
noise and false prophets in the investment world and take control
2 probability is the
key to improving outcomes in the markets and in life
3 timely investment
themes, sectors and stocks matter only because they tend to produce greater volatility
4 greater volatility
brings greater opportunity
independence, and their drug is sweat equity. They’re the ultimate bootstrappers. And their stories have pointed my family toward some seductive side gigs. My son, Jake, is sharp on the idea of a knifesharpening side hustle after listening to episode #308 of Nick Loper’s Side Hustle Show podcast. The idea checked three of Chris Guillebeau’s side-hustle evaluation boxes because it’s feasible, profitable and persuasive. Startup expenses came to less than $300, and what could possibly go wrong when a 16-year-old is working with knives? I’ve been bitten by the side gig bug, too, inspired by the sensational side hustle success story of Ross Gordon, founder of Mystery Tackle Box (see p. 24). I promise to let you know how Jake and I fare with our side gigs. We hope you do the same. Savor the side hustle! Jeff Joseph editorial director
5 options are the
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two ways to send comments, criticism and suggestions to Luckbox Email feedback@luckboxmagazine.com Visit luckboxmagazine.com/survey A new survey every issue.
luckbox | december 2019
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Open Outcry
66%
say they’re better off economically now than four years ago
Best New Magazine!
60%
pursue a side hustle in addition to their full-time employment
47%
have more than one side hustle —Luckbox Reader Survey
Readers sound off about about their side hustles and their views on the economy.
There has been a huge widening of the wealth gap. Those in the top 1% have enjoyed the benefits of a massive tax cut and corporate deregulation. Those who depend on wages for a living have received very little tax relief and have not seen substantial growth in real income. Union representation, offering voice at work, is on the decline. Luckbox magazine is a terrific vehicle for discussing financial and societal ideas in a unique format. —Norman K. Holsinger, Ph.D. West Roxbury, MA Our capitalist system has become mostly a corporatocracy with corporations viewing customers as products to be monetized with virtually no regulatory oversight. Companies value keeping their stock price high through expensive buybacks rather than using their money to invest in growth. CEOs who make $25 million a year complain about having to pay a worker $15 an hour. When the bubble finally pops, it will be ugly. Smart traders know to be nimble. I enjoy the variety of topics in Luckbox. —David Lamar, Silicon Valley, CA Our current “growth” is actually false because the real value of our currency, relative to the gold standard that was abolished in 1971, has been diluted because of the “quantitative easing” that occurs when the Federal Reserve Bank purchases assets to inject liquidity into the economy. Then there are the other fiscal shenanigans of this sage group of elites. The Fed should be abolished to allow the free market economy to determine interest rates without the influence of the international banking elites who now control and dictate the direction of world currencies. Far too
In the magazine world, editorial and design teams covet two award nominations: the prestigious Eddie (for outstanding editorial) and Ozzie (for design excellence) from Folio magazine. The staff learned in August that Luckbox was nominated for two Eddies and one Ozzie—the most nominations received by any new magazine! Now, the results are in. The magazine was named the runnerup for the Best New Business to Business Magazine Editorial Award, the runner-up for the Best New Custom Content Magazine Design Award, and the winner of the Best New Custom Content Magazine Editorial Award for 2019!
many people are getting rich at the expense of the little people. Buckle your seat belts. —John Gerstle, Louisville, KY I’m concerned that the economy is not as good as the government is reporting. Luckbox is very interesting. When you cover side hustles and the gig economy, I would like to hear more success stories from side hustlers and trading people. —Brandan Baca, Aurora, CO
Not surprised you won an award for Luckbox. Great read! —Paddy Tuite, Ireland You’re not winning awards because you’re good at what you do. You’re winning them because you’re appealing to vacuous hipsters who traffic in vogue words, believe they’re the “greatest of all generations” and only care about the surface of a product. Translation: shallow people find you appealing and impressive. —Anonymous
While the overall economy appears to be doing well, I think it is a factor of low-cost debt. Wages have not increased over the past many years and are not coming close to keeping up with real inflation. Companies are sitting on piles of cash but are not sharing that with employees because they are rewarded by the market to do so. At some point, the music has to stop, and a lot of people will be left without a chair. I think that the profile of a retail trader would be a neat idea—stories of traders and how they got there. —Tyson Miller, Hilton Head, SC
Anon, agree hundo P! Ur so on fleek. Imma down with the JOMO of Luckbox. TBH, I don’t blame you to dipset this less than Perf rag. #icanteven
Brandan and Tyson—This issue of Luckbox includes profiles of two successful part-time traders and seven side-hustle success stories. Also check out the Luckbox of the Month, a young side-hustler focused on big dough.
Note: Luckbox thought Anon warranted an appropriate response. It’s not our first language, so the staff engaged a vacuous hipster to craft this reply. Sorry, not sorry :)
december 2019 | luckbox
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SHORT INTEREST
“The gig economy has become a stopgap for some workers who can’t make ends meet in a weak labor market. The much-touted virtues of flexibility, independence and creativity offered by gig work might be true for some workers under some conditions, but for many, the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10%.”
If the gig economy keeps growing at its current rate, more than 50% of the U.S. workforce will participate by 2027. —Wonolo, an on-demand staffing platform
“The gig economy portion of the independent workforce is relatively new and has been developing quickly. As such, new policy issues are presenting themselves, and we don’t really know which will be the most important and problematic.” —Paul Oyer, professor of economics at Stanford University, via Analysis Group
—Elizabeth Warren
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“The gig economy is empowerment. This new business paradigm empowers individuals to better shape their own destiny and leverage their existing assets to their benefit.”
“The top reason for pursuing a side hustle among millennials is to generate additional income for savings, while Gen Xers and Boomers cited making money for leisure activities.” —SunTrust Banks
—John McAfee, whose former company offered the first commercial antivirus software
“81% of Americans who have a side gig are interested in taking it full time.” —SunTrust Banks
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11/14/19 3:17 PM
FAKE FINANCIAL NEWS
Benefits with Friends This side hustle provides companionship for almost any occasion—at a price
By Vonetta Logan
A
Starbucks in the Chicago suburb of Skokie, Ill., bears a striking resemblance to nearly any other strip mall Starbucks. It’s filled with cougars wearing yoga pants, students tapping at laptops and geriatric Russians playing chess. I find a seat at a communal table and place my laptop case on the seat across from me. A harried student comes in and asks, “Is this seat taken?” “Yes,” I reply, “I’m saving it for my friend.” The student shuffles off in search of a power port. A few minutes later, Alyssa walks in, long black hair cascading over
her shoulders, her cheeks rosy from the blustery cold weather, her glasses fogging from the change in temperature. She sits down and I set up my recorder. What I couldn’t explain to the student, and what I have a hard time explaining to you, dear Luckbox reader, is that I was saving a seat for my friend; a friend I rented on the internet. What appears to be two millennial women catching up over banana loaves and dirty chai lattes is actually a first-time meeting between two people whose relationship is transactional and facilitated by rentafriend.com.
Alyssa hopes to make real friends through her side hustle as a RentaFriend companion.
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The site was founded 10 years ago by serial entrepreneur Scott Rosenbaum. The “strictly platonic friendship” site generates revenue from members who pay $24.95 a month for access to more than 620,000 rentable “friends.” Savvy side-hustlers create free profiles and rent themselves out for anywhere from $10 to $50 an hour for activities ranging from hiking to catching the latest museum exhibit or helping plan a party. The site features full-color images of “friends,” showcasing areas of interest, height, hair color and eye color. The data blurs the line between a platonic friend site and a potential dating site. Most people don’t search for friends by cup size. An online search for RentaFriend yields enough weirdness to make it seem the site exists solely to help journalists write clickbait stories. But Alyssa assures me the requests are genuine. “I joined in the summer, and I’ve met three people in person since then,” she notes. She’s a single mom, so it’s hard to meet new people. She sees the site as an avenue to forge possible friendships while also earning extra cash. Her first “friend” was a woman. “I really thought it was more weird for a woman to be looking for a friend,” she recalls. “I could see how men would want one, [but] we texted for about a week and it was for her bachelorette party.” The bachelorette festivities included a DJ, fun games and even a “naughty cake,” Alyssa recalls.
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“Then I found out that the other ‘guests’ were also from the website.” The woman, whom Alyssa describes as “kind of a wallflower” threw herself a raging party attended entirely by strangers from the internet. Alyssa says her second “friend” was a gentleman, “a few years older,” who reached out via a sweet text telling her he liked her glasses. He asked if she would accompany him to dinner. “He was asking me what type of food I wanted, and it came off like a date to me, and he gave me three options and all were four-star restaurants,” she says. “We went to an upscale steakhouse.” He was shy but respectful. “He kept telling me he just wanted someone to talk to,” she remembers. “He says that to be in a relationship you should be friends first. So he thought rentafriend.com would be the best avenue.” The third person she met was in a relatable situation. His coupled-up friends had planned a bar crawl, and he was literally the lone man out. He’d heard about RentaFriend on the radio and thought it was a joke. When he found out it wasn’t, he contacted Alyssa to pose as his “pretend girlfriend.” She says it threw her off guard because, “I wasn’t meeting just one stranger, I was meeting a bunch of men.” They all seemed cool, but the one hiccup of the evening occurred because they hadn’t devised a cover story about how they’d met. Alyssa smoothly told his friends they had met on Tinder. He was respectful, holding her hand while crossing the street without getting handsy. As a side hustle the income isn’t consistent enough to count on. But Alyssa hopes the site will enable her to connect with people on a spiritual level. She knows it’s weird, which is why she has only told one of her friends and no one in her family about her entrepreneurial endeavor. The stigma is real. “Once I tell people, they’re going to say, ‘That’s kind of weird,’ and ‘Do they touch
you?’ Stuff like that.” I laugh and tell her, “Do they touch you” is going to be the pull-quote for this story. Alyssa gets serious for a second and then says, “To be honest, I feel like society is losing its ability to make friends organically. We’re losing this kind of skill to just go up to someone and make small conversation and then develop a connection or friendship.” Talk to any sex worker or watch any documentary on “transactional relationships,” and you’ll find most people aren’t really interested in knockin’ da boots. Increasingly, they’re paying a premium for “girlfriend experiences” where customers receive calls and regular texts from women. It’s an imitation of a real relationship. In 2019, “Honey, how was your day?” is more of a turn-on than “Do me, cowboy.” The premise for this article was that Alyssa would help me with the “wing woman services” listed in her profile. I’m nerdy and awkward. As a matter of principle, I should not interact with the opposite sex unless under the supervision of a trained professional. But her personal story was so intriguing that we didn’t really get around to it. I did ask for pointers, and she told me how she does it. “Make eye contact, flip your hair, look at him, then look away,” she said. “If I feel like he’s taking the bait, then I would go up to him and tell him about you.” We giggled like school girls conspiring in a note-passing scheme but, as usual in the modern age, there wasn’t a single man around us who wasn’t engrossed in his smartphone or laptop. The most coquettish hair flip would have failed to distract anyone from his screen. In a time when my own friends are popping out kids like kittens under the L tracks and my asinine texts about boy problems go unread, it seems nice to have a site where someone will have time for you. Alyssa is earnest and a good listener. She says, “I feel like I’ve been through a lot, and people my
age are going through things that I may have gone through, so I have good insight. Sometimes people just need someone they can talk to. I’m a big believer in therapy. It doesn’t have to happen sitting in an office— it can take a lot of different forms.” Friendship, whether organic or transactional, can be deeply healing, and in a world of social media personas carefully crafted for likes, true friendship seems elusive. The pain of loneliness is real, so if texting a stranger isn’t for you, calling an actual friend you haven’t reached out to in a while might be a good idea. It’s important to check on friends and acquaintances this time of year, when the smiles online might not match reality. But yeah, if you want to throw yourself a kickass party but you’re too embarrassed to buy an outrageous penis cake, I have a friend for you.
“I was saving a seat for my friend; a friend I rented on the internet.”
Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan
RENTAFRIEND The web-based business RentAFriend is based on Family Romance, a Japanese site where a customer can hire an actor to pose as a relative, spouse, coworker or significant other. The most popular “friend” requests come from travelers visiting a new city in need of someone to hang out with and see the sites. Other customers hire someone to accompany them to family functions, act as a wingperson or join them for dinner. The site doesn’t perform background checks, so meet your friend in a public place and tell others where you’re going. • 620,000+ people side hustle as friends for hire worldwide • A $24.95-a-month subscription is required to contact friends (you can cancel anytime) • Simply create a friend profile and become a friend for free • The $10-$50 hourly rate goes directly to the friends
december 2019 | luckbox
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SidE hUstLes iN thE Workers are trading security and stability for freedom and flexibility— and often, a big upside!
Gig
EcoNomy 14
These Guys Can KickStart Any Side Hustle
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20
Side-Hustle Success Stories
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6 Simple Side Hustles
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Trading as a Side Hustle
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Uber & Lyft: Buy or Sell?
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thE siDe-HustLe centUrY Part-time entrepreneurs are inheriting the world By Ed McKinley Tens of millions of American workers have had a second job—usually to help pay the bills but sometimes to fuel a passion or scratch an itch. Their extra-curricular activities tend to fall into one of two categories. When an employer sets the hours and determines the pay, it’s a parttime job that’s sometimes known as “moonlighting.” But when budding entrepreneurs call the shots themselves, they’ve created a side hustle. Let’s delve into the latter. Side hustles can include almost any kind of service, and they range from almost totally unskilled to highly specialized—anything from dog walking to search engine optimization. They’re as obvious as driving for Uber and as surprising as becoming a dating coach or collecting fees for watching videos online. Whatever the arena, it makes sense to pursue a second source of income in today’s gig economy. Old patterns of employment are fading away. These days, fewer workers persevere in the same career for decades in exchange for a predictable salary, health insurance, life insurance, paid vacations, sick leave, family leave, stock options, 401(k) plans and pensions. Instead, an increasing number of workers go their own way. They’re under contract for a specified period of work or until they complete a specific project. They pay for their own insurance, budget for lean times and, hopefully, provide for their own futures by putting away some cash or investing in real estate or securities. A fallback second line of work can help ameliorate the uncertainty of going it alone. Then there’s the creative aspect of the side hustle. After a day of stocking shelves or writing code, it can feel liberating to teach guitar chords or “stage” a house that’s about to go on the market by arranging furniture and artwork. Why should a worker
with varied interests fulfill only one of them in the workplace and neglect the others? So just about everybody qualifies as a potential side-hustle entrepreneur. It could be the cash-strapped stage manager of a rock band who makes the rent by printing logos on T-shirts and selling them online. Another might be an affluent, numbers-savvy accountant who expresses a refined sense of visual composition in a second job as a professional photographer. Whoever they are, wherever they come from and whatever they’re seeking, the ranks of American side hustlers are growing. But sources disagree on how fast the phenomenon is expanding and how many workers have taken it up. The confusion arises partly because the U.S. Bureau of Labor Statistics, a critical source of information about the labor market, doesn’t track what it calls “non-primary work.” The government ignores side hustles in an effort to avoid what’s trendy and thus keep its stats comparable over long periods. Numerical disparities aside, it seems reasonable to assume that half of the population will soon work as private contractors. It’s already reached that point, a SunTrust Banks survey indicates. Forbes magazine calculates that 57 million Americans operate totally or partly in the gig economy, which is 36% of all workers. MBO Partners projects that 58% of workers will have served as private contractors by 2027. Whatever the total, people have been working second jobs for millennia. The word “freelance” dates back to at least the 1700s, when it was
applied to mercenary soldiers. The phrase “side hustle” was coined in the 1950s. But the side-hustle movement has exploded as millennials— the generation born between 1981 and 1996—has come of age. In fact, the side-hustle has become a cultural touchstone for millennials. Consider a question posed in Glamour magazine: “You don’t freelance on the side … what kind of urban-dwelling millennial are you?” At any age, working a side hustle requires discipline. More specifically, a side hustle’s four requirements include place, routines, purpose and people, says the Harvard Business Review. Place means somewhere to retreat to get the job done. Routines require scheduling and to-do lists. Purpose means striving for a goal, such as higher income, more satisfaction on saving the world. People, including mentors, peers, clients and customers, fend off the loneliness of a solitary side hustle. Side hustlers can pursue mundane tasks like housework, dog walking, and dog poop scooping. They can take up the obvious, such as reselling merchandise online or driving for a ride-sharing service. But the best brainstorm for ideas and come up with some surprising sidelines. Take the example of the grad student who helps brides find vendors for wedding arrangements. Investing effort in a side hustle can pay off in countless ways Side hustles pay the bills, fulfill ambitions and realize dreams. As the economy forsakes the full-time, long-term model of employment, side hustles look to gain even more importance for financial security. Welcome to the Side-Hustle Century.
Side hustlers make an average of $8,794 a year, with millennial side hustlers earning nearly 20% more per year at $10,972. Source: SunTrust Banks
57 milliOn americans operate tOtally or partly iN the gig Economy, whicH is 36% of all workErs. december 2019 | luckbox
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ec the on g om ig y
tHesE Guys cAn kicKsTart aNy sidE hustLe Luckbox sits down with Nick Loper and Chris Guillebeau, two side-hustle proponents who made side hustling their main gig By Ed McKinley
Chris Guillebeau
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Nick Loper
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Two side-hustle gurus side hustled their way into the full-time side-hustle business. Chris Guillebeau began by blogging part-time about money-making sidelines for travelers, and Nick Loper started with a part-time comparison-shopping website for shoes. After those humble beginnings, both went on to learn the nuances of side hustles and then began sharing that wisdom. Now, their books convert legions to the side-hustle movement, their websites attract millions of monthly visitors and their podcasts have been downloaded millions of times. So what do they have to say? Loper and Guillebeau agree the average person can develop a profitable side hustle to augment the income from a day job. Virtually everyone possesses a sometimes-hidden skill or talent that could develop into a marketable product or service. Just add strong motivation, a serious attitude and a robust work ethic. Precise timing can help, too. Both experts hesitate to calculate the mathematical probability of side-hustle success, but they note that nearly half the population is already pursuing a second income or will soon try. Many of those side hustlers will achieve their goals, the two side-hustle pros conclude. “The odds of success are pretty good, depending on what you decide to
do,” Guillebeau says of beginning side hustlers. Loper cites valuable side-hustle personality traits, such as persistence, stubbornness, resilience and a willingness to figure something out on the fly instead of beforehand. Beyond that, side hustlers who succeed generally have one of two answers to the question of why they’re hungry for a part-time gig, he says. They either want more from life than their regular job provides, or they simply need the money. Side-hustle advice Side hustlers should choose a secondary gig that fits their skills or knowledge, Guillebeau advises. Everyone’s an expert at something, often without even realizing it, he says. Discovering a hidden expertise or latent talent can require a “self-interview” or consulting with friends, he contends. But he’s confident he can usually detect someone’s natural-but-marketable side-hustle skill in a three-minute conversation. Guillebeau’s advice doesn’t end there. Be practical instead of purely aspirational, he admonishes. “Don’t follow your passion—follow your skill,” he says. “You may like to play golf, but you don’t necessarily want to get into the golf business.” Loper agrees. “You become passionate by doing the work,” he says, providing the examples of
“don’T folLow yoUr paSsioN— fOllow yOur skilL.”
his own forays into house painting and podcasting. He didn’t care how houses looked before he started painting them as a college student, but he soon caught himself critically eyeing the eves of every home he passed. In much the same way, his initial indifference to podcasting grew into an emotional attachment that’s now a central part of his life. Yet even when capitalizing on a personal strength, fledgling side hustlers should prepare for setbacks,
Side-hustle expert Chris Guillebeau 1,028 podcasts to date Resource websites: chrisguillebeau.com and sidehustleschool.com Books include: The Art of Nonconformity, The $100 Startup and Side Hustle: From Idea to Income in 27 Days
—Chris Guillebeau, on choosing a side hustle
Side Hustling 101 To execute the most basic side hustle, simply begin reselling merchandise online or out of the family garage, suggests side-hustle expert Chris Guillebeau. Years ago, he started hawking his belongings on the internet and immediately found himself making $18 an hour—significantly more than the $8 an hour he was earning by loading trucks on the graveyard shift. “Plus, there’s freedom and flexibility,” he notes of side hustling.
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Loper cautions. “It’s always going to be harder than you think,” he says. “But that makes it worthwhile. If it were easy, everybody would be doing it.” He notes that it’s less challenging to choose a “plug and play” gig with Lyft than to come up with a unique side hustle. Whatever gig one picks, side hustles don’t necessarily last a lifetime. “Choosing what’s next doesn’t mean choosing what’s forever,” Loper says. Even someone who doesn’t want to be painting houses at age 50 might do well to consider seizing that opportunity for the moment. In any case, choose a hustle and do it, he urges, because the best opportunities often appear to side
Side-hustle expert Nick Loper
hustlers who are already in motion. “You have to look at it as an experiment,” Loper says of the early stages of a side hustles. “Until you try it, you never really know,” he contends. Start small with the understanding a particular gig may not work but something else could succeed later. But that nonchalance doesn’t equate to turning off the brain. Side hustlers should remember that the public tends to seek one of two results from a product or service— entertainment or the solution to a problem. Notable side hustles Some wacky-sounding side hustles work well, Guillebeau says. He tells the tale of a short-order cook who liked to break the monotony of his job in a diner by creating smiley faces on pancakes. The cook began offering his edible art at catered events—like birthdays and weddings—and it became so popular he found himself traveling the world to enliven parties everywhere from New York to Dubai. These days, he controls a lucrative pancake-decorating business and has attracted 300,000 Instagram followers. In another example, a Korean-American founded a successful business that offers a subscription box for Korean face masks that act as overnight moisturizers, Guillebeau says. In yet another, a mother of twins who was frustrated with
commercially available hairbrushes invented a better one and—with low startup costs and without much experience—turned it into a seven-figure business. Loper has stories, too. “I’m always amazed at what people come up with,” he says of the ideas he encounters. He recalls a college student, Chris Schwab, who started a house-cleaning business called Think Maids without ever picking up a mop or a broom. Instead, the enterprising American University undergrad hired people to do the work and spent his time on marketing and on heading off scheduling snafus, making sure phone calls were returned, and fixing or avoiding other customer-service headaches. At the 90-day milestone, his business was pulling in $20,000 a month. “Overall, I spend maybe 10 minutes a day running Think Maids now,” he said. One entrepreneur, who wishes to remain anonymous because his hustle is nearly free of barriers to entry, regularly scores $100 an hour on Saturday mornings by picking up dog droppings. The pro scooper determines the price based on the size of the yard and number of dogs in the home. Another budding businessperson didn’t have access to enough capital to become a real estate investor, but he had enough cash to buy trampoline-like “bounce houses” for children’s parties. He rented them out for enough to make a profit.
350 podcasts to date Resource website: SideHustleNation.com Books include: The Side Hustle, Buy Buttons and Work Smarter
“It’s AlwayS gOing to Be harDer than yOu tHinK.” —Nick Loper, on starting a side hustle
Side-Hustle Philosophy Driving for Uber can teach the lesson that income doesn’t have to derive from a full-time job, according to side-hustle expert Nick Loper. But the best side hustles, he says, don’t come courtesy of some outside employer—they come from within.
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4 Proven Frameworks for Generating Business Ideas The Rip, Pivot and Jam Method Here’s how it works: • Look at a successful business and copy its business model (rip) • Apply it to a new industry or vertical (pivot) • And then hustle like crazy to get customers (jam)
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BOOK EXCERPTS
The side hustle: How to Turn Your Spare Time into $1,000 a Month or More By Nick Loper
Side Gigs Build Security If you rely solely on one source of income, you’re pretty much screwed when that source of income stops. That’s why so many people were hurt so badly during the Great Recession and why there’s been such an increased interest in micro-businesses and entrepreneurship. Four in 10 Americans can’t cover a $400 emergency expense, such as a car repair or medical bill. To me, that’s a frightening and depressing statistic. A side hustle is one way to build up your emergency fund so you never find yourself in that position. In investing, we’re told to maintain a diversified portfolio. Why? Because having all your eggs in one basket is inherently risky. The same is true with income. It’s dangerous to rely on one company or one paycheck, no matter how lucrative it may be at the moment. In today’s world, there’s no such thing as job security.
The Shovels in the Gold Rush Method Perhaps you’ve heard the advice, “In a gold rush, sell shovels.” The phrase comes from Sam Brannan, allegedly California’s first millionaire, who brought news of gold to San Francisco in 1848. But first, he bought up all the picks and shovels in the city so he could resell them at a profit. Many businesses have been built exclusively to serve Amazon sellers. There are product research services like Jungle Scout, inventory management tools like Inventory Lab, and price-scanning apps like Profit Bandit. To use this method, you just need to find a gold rush to support. Maybe that’s Airbnb hosts, maybe it’s keto dieters, maybe it’s people getting into the latest network marketing trend.
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The Intersection Method The Intersection Method aims to find potential service business ideas at the intersection of your skills, your interests and your network. To play around with this, get out a piece of paper and make three columns. In the first, list your skills. Don’t discount skills you’ve learned outside traditional employment. In the second column, list your interests outside of work. What do you enjoy doing? In the last column, list out who you know or, rather, the types of people you know.
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The “Expert Enough” Method What do your friends, family, and peers ask you for help with? Are you the go-to person in your circle for tech support, photography, handyman work, accounting, BBQ technique, travel planning or something else? If people are asking for your help, they think you’re “Expert Enough.” (Now, they might not be willing to pay for you advice, but that doesn’t mean others won’t.)
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No skills? Play Matchmaker Side hustlers “with no skills” can play matchmaker for those who do. An example is Chris Schwab, whose Think Maids service connects housekeepers with customers. (See preceding page.)
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Loper also cites the case of Chris Green, who sells T-shirt designs through Merch by Amazon, an invitation-based platform that pays designers royalties. Anyone interested in joining should apply, Green advises. Royalties vary but on a standard $19.99 T-shirt he collects a $5.23 royalty. The beauty of the site is that designers don’t have to carry inventory or incur any other expenses—they only make money. “It really is a too-good-to-be-true kind of thing,” Green claims. In another memorable side-hustle story, Loper describes the journey of Brian Schooley. When Schooley heard about the possibility of becoming a mobile notary, he was working both a full-time and a parttime job. Two-and-a-half years later, Schooley now plans to take his side hustle full-time. “Really anybody could do it,” he says. “If you just learn about the documents, it’s pretty easy to become a notary.” In California he had to take a six-hour course,
aftEr reaching tHe $500-a-montH Mark witH a side hustle, it’s usUally not tHat difficult tO ProgresS to $1,000 oR $2,000 monThLy. —Chris Guillebeau
pass a 30-question state exam and purchase insurance. In the last month, he made $6,000. What side-hustling requires Side-hustle entrepreneurs reach inside themselves to find their own gigs instead of signing on to work for someone else, says Guillebeau. By that definition, Uber, Lyft and other part-time jobs don’t qualify as side hustles. He characterizes side hustles as “more next level” than that. “A side hustle is an asset you’re creating for yourself—something that’s going to build security for the future, help you get ahead or pay off significant debt,” he maintains. Loper, on the other hand, views driving for a ride-sharing service as a valid side hustle that can teach something fundamental—the lesson that income can flow from sources other than a full-time job. Still, the best side hustles don’t result from Googling a list and randomly picking No. 37. The best come from within, he says, agreeing at least in part with Guillebeau. Wherever the inspiration arises, side hustles need not break the bank. “You’re not going to spend your life savings,” says Guillebeau. One factor that helps hold down costs is that would-be entrepreneurs often know within 30 days or so if a side hustle shows the potential to succeed.
Regulation, licensing and other red tape shouldn’t stand in the way of starting a side hustle, Guillebeau contends. Those factors become important only after a side hustle is well underway and turning a profit, he says. Earning $500 a month part-time defines side-hustle success in Guillebeau’ eyes. Though he admits the figure’s a bit arbitrary, he notes that it could make a car payment or whittle away at a student loan. After reaching that $500 mark, it’s usually not that difficult to progress to $1,000 monthly, he says, adding that a little more effort can bring in $2,000 each month. Whatever the amount of cash flowing into the coffers, it’s important to begin with an actionable goal, such as making $50 a day with a side hustle, Loper recommends. That provides a way of measuring success. But however one measures success, the side-hustle gurus are convinced of at least one thing. Their extensive research and their nearly countless interviews with side hustlers of every stripe have led them to believe deeply that almost anyone who’s motivated and capitalizes on established knowledge or skill should pick a gig and take a shot. “Go for it,” they would agree.
From Side Hustlers to CEOs Entrepreneurs can get a daily dose of actionable advice from Bootstrapping in America, a 20-minute interview show on the tastytrade online financial network. The program’s guests describe the adventures and misadventures they experienced starting their own companies. Interviewers include tastytrade co-CEO Kristi Ross (left), a serial entrepreneur who’s recognized nationally for mentoring, advising and investing in early-stage businesses. The show starts at 10:10 a.m. Central time, Monday through Friday. Most of the show’s 2,000 episodes are archived on the tastytrade website.
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Watch Steven Galanis of Cameo on Bootstrapping in America
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10 Steps to Getting Started 1. Get a separate bank account that’s just for your side hustle. 2. Similarly, get a separate credit or debit card you use only for expenses associated with your hustle. Bonus tip: make sure you’re earning airline miles!
BOOK EXCERPTS
Side Hustle: From Idea to Income in 27 days By Chris Guillebeau
5 Things You Don’t Need to Begin A Side Gig • Y ou don’t need much money. Put away your credit cards (at least the ones with high limits) and don’t worry about needing to raise capital or ask someone for a loan. In some cases, no money at all is required. • Y ou don’t need much time. The time required to start a hustle should be minimal and take no more than one hour a day. • Y ou don’t need a business degree or specialized education. You’re starting your own business, not running someone else’s. You won’t need complicated software or spreadsheets. Write financial forecasts on the back of a napkin. • Y ou don’t need employees, assistants or business partners. You may want to get help at some point, but not right away. The initial goal is to start on your own, using your own skills and effort. • Y ou don’t need experience starting a business. You don’t need to be an “entrepreneur” to start a side hustle.
Key Criteria Checklist Is your idea feasible? Your goal is to start a project in a short period of time that earns money outside your day job. Can you envision your next steps? If not, abandon the idea.
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Is your idea profitable? You’re not looking for an idea that merely sounds interesting, you’re looking for a profitable one. A side hustle is something that makes you money, not costs you money. If you don’t see how you could make money from the idea, preferably in a short amount of time, it’s probably not a good idea.
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Is your idea persuasive? Your idea has to arrive at the right time and be so persuasive that it’s hard for customers to say no—you want the right idea at the right time.
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3. Pay for everything you can up front. You’ll operate lean and worry far less if you don’t owe money to anyone. 4. Set aside at least 25% of your hustle income for your annual or quarterly donations to the government. 5. Be fast with invoicing. Don’t save invoicing for one day at the end of the month. When you do the work or make the sale, send the bill. 6. Insist on a written agreement for service work—basic terms in writing to avoid misunderstandings. 7. Legal structure: operating as a sole proprietor is perfectly acceptable for many hustles. If you need to incorporate your hustle, you can often do that yourself online for much less than it would cost to hire an attorney. 8. From the beginning, set up a simple accounting system. This should be cheap or free and can grow with you. 9. Set aside a dedicated hustle workspace, even a small one, in your home. If that’s not possible, create a mobile one. For example, if you like to work at a coffee shop, go to the same one at the same time, and try to work from the same table. The idea is to create a pattern and a routine that will make it easier to work on the hustle consistently. 10. Pay yourself first. Set up a system to transfer profits from your hustle account to your personal account on a regular basis. Don’t have it set to transfer continuously as sales come in (that can be difficult to track later), but withdraw at least some profits on a regular basis. Getting paid is empowering!
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siDe HusTlE SucCesS sToriEs Most part-time gigs simply supplement a full-time job, but these side hustles blossomed into major, life-changing enterprises for some savvy entrepreneurs By Mike Reddy
While side hustles start on the side, they don’t always stay there. After all, the driving forces that inspire side gigging are many—from meeting an economic need or practicing a unique skill to testing a burning idea or exploring an individual passion. As such, no two profiles in the following collection are the same. However, they do share similarities. Each story covers a founder or co-founder of a venture that started as a side hustle. And in every case, the side hustle became successful enough to scale into a full-blown business. Regardless of what inspires a hustler to start working on the side, with the right approach, what starts as a hustle could turn into a lucrative career.
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PlayiNgcardDecks.com This magician’s success is anything but an illusion Professional magician Will Roya began performing magic gigs in college and then graduated to his own stage show in Las Vegas. But he has since replaced pulling rabbits from hats with pulling big sales from his own playing card e-commerce business, playingcarddecks.com. What is now home to over 1,500 card deck designs and other merchandise (see Gift Guide p. 43) started when Roya was still performing magic. He told Luckbox his first foray into sales came when he sold instructional DVDs after his magic shows. “I knew there was a market for good instruction videos,” Roya said. “This was before the popularity of YouTube.” But Roya’s side hustle went through several transformations. What started with selling instructional DVDs for magicians expanded when he began selling his wares on eBay. Before long, his side hustle became his full-time gig. With only one full-time employee to handle shipments and several freelancers to help out, Roya’s site
processes about 2,000 orders a month and is on track to make $1 million in gross sales this year. For prospective side hustlers seeking advice, Roya suggested finding something that can scale and could make money in one’s sleep. Great customer service, he added, is probably the biggest factor to his success. “Make a plan and stick to it,” he said. “If you really want to be successful, I would say go all in on one thing once the concept is proven.”
Name: Will Roya Age: 43 Home: Henderson, Nev. Education: University of Vermont, B.A., Theatre
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eXplodiNg KiTtEns No animals were harmed in the making of this business Elan Lee has made a name for himself in the Kickstarter universe. He entered the workforce cleaning up after dogs at a pet store, went on to work for Microsoft as a lead video game designer and later helped create the ninth most-funded Kickstarter campaign to date in Exploding Kittens (see Gift Guide p. 43). Nearly 220,000 backers pledged over $8.7 million to breathe life into the project, described as “a card game for people who are into kittens and explosions and laser beams and sometimes goats.” It was listed with a $10,000 funding goal. “We hit that in seven minutes,” Lee told Luckbox. “We hit about a million dollars in, I think, two hours.” While many factors led Lee down the path to designing a card game, he said the most influential one came to him during a visit to his brother’s house. “He has two kids,” Lee said. “I walked in the door, and they were
both in the living room playing a video game on the Xbox. When I walked in, neither of them even looked up to say hello.” The ironic part: They were playing a video game Lee helped create. “They were in a room with me and each other, and their mom was in the room too, and none of them were talking—it was like they were isolated and lonely in a room full of people. And it felt horrible,” Lee said. “I needed to do something to bring people together and celebrate each other instead of staring at screens.” But what is now Exploding Kittens started as Bomb Squad. Lee’s friend, Shane Small, who also worked at Microsoft, had come up with the idea for a mobile game based on Russian Roulette. After building a paper prototype, Lee and Small realized not only that the game had legs, but that it would work better as a card game. So Lee and Small left Microsoft at the same time, determined to
Name: Elan Lee Age: 44 Home: Los Angeles Education: Rochester Institute of Technology, B.S., Computer Science
solve the problem of getting people away from screens. They decided to put their idea on Kickstarter while they looked for their next jobs, but sometime before that, Matthew Inman, cartoonist and creator of the webcomic site The Oatmeal, got involved. Inman drew the illustrations for the cards and suggested replacing bombs with the now-iconic exploding kittens. “Matt literally drew all the cards in about two weeks, and we put it up on Kickstarter probably a week after that,” Lee said. “Between the time the game was invented and the team was formed, it was probably up on Kickstarter within three weeks.” And they didn’t have to spend a cent. It took about an hour after launching the campaign for Lee to realize that what was originally
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ec the on g om ig y a side project had just become his new full-time job. And Exploding Kittens LLC hasn’t stopped creating since, releasing other critically acclaimed games such as Bears vs Babies, You’ve Got Crabs, On a Scale of One to T-Rex and Throw Throw Burrito, in addition to expansion packs for the game that started it all. “On a daily basis, we sell somewhere between 2,000 and 3,000 games,” Lee said. “It’s so flattering and it’s so incredible to think that this thing that we built—really intended to be a small diversion because it brought us joy— is now bringing so many other people joy.” What started out as a three-man team working out of Lee’s garage has scaled into a 25-person team working in a full-blown studio, selling somewhere close to 9 million games across all titles since Exploding Kittens was released in July 2015. And if that wasn’t enough, Lee said the team rented the Portland Convention Center from May 16-17 of next year for the first “Burning Cat,” a game-packed convention for attendees to play, learn and connect with like-minded people. The only rule: no screens allowed. Lee had the following to share with aspiring side hustlers: “When you look closely at all your big ideas, your inventions, your passions, and you start to form a clear picture of what they might look like when they come together, you must also make room for another thought,” he said. “You’re never going to know if any of those ideas are worth anything unless you try to build them. And the actual barriers to getting started are much less scary in reality than the versions in your head.”
vOrTic waTcH CompAny Time is money, literally, with this scaled-up side hustle Challenged by their Penn State professors to come up with a product that was 100% made in America, RT Custer and his friend Tyler Wolfe brainstormed on a golf course between classes. “We like to say America wasn’t assembled, it was built,” Custer, who is related to the late Civil War general, told Luckbox. “In my opinion, you shouldn’t be able to call your product ‘Made in America’ unless all the components are also made here.” Their conversation eventually shifted to watches—specifically how no one was making completely American wristwatches. But that, they decided, ought to change. The duo didn’t start by building watches by hand—they didn’t know how to. But they knew that completely American-made timepieces existed in abundance in the antiquated style of century-old pocket watches. In fact, between the mid-1800s and mid-1900s, 10 U.S. companies produced over 100 million pocket watches. The insides of those watches, Custer said, were often thrown away
Name: RT Custer Age: 28 Home: Fort Collins, Colo. Education: Pennsylvania State University, B.S., Industrial Engineering
after their gold or silver cases were melted down for cash. “We just went all in on this idea of saving pocket watches and turning them into wristwatches,” Custer said. Thus, the business model powering the Vortic Watch Company (See Gift Guide p. 37) was born—producing what the industry calls “pocket watch conversions,” or taking the insides, called movements, of pocket watches and putting them into modern wristwatch cases. Custer and Wolfe were at the
lEarn HOw to faiL QuickLy aNd Fail iN a smALl way.
yOu’rE neVer goiNg to know iF aNy of those idEas arE worTh anytHing unless yOu try tO bUild thEm. 22
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helm of their new business as co-founders, but the enterprise started as a side hustle while Custer worked as a logistics engineer for Walmart for two years. “I basically provided the roof over our heads, literally, while [Wolfe] was building the business for those two years I worked my corporate job,” Custer said. “And then we basically used Kickstarter as proof of concept, and then we raised money through angel investors, mostly friends and family, to really grow the company.” A little over 100 backers pledged over $40,000 to Vortic’s 2015 Kickstarter campaign, which hit its $10,000 goal within the first 12 hours and resulted in the sale of about 50 watches on that platform alone. But it wasn’t until several years later, and after a failed Kickstarter campaign, that the side hustle turned into a profitable, full-time gig. “We had an idea for another product, basically a fully modern watch that had our name on the front—just kind of a more normal wristwatch,” Custer said. “I believed so much in that product that I quit my job. Long story short, we failed.” Already having quit his day job, Custer was all-in with Vortic. And by applying the development and research tactics planned for the new product into the pocket watch conversions, production nearly tripled and revenue doubled, making 2018 the first profitable year for the company. Vortic has gone on to sell approximately 1,200 custom wristwatches— making, finishing and listing about one watch every day. It’s one of the only companies in the market for antique pocket watches, and Custer said 40%-50% of their watches sell within 10 days. For new side hustlers, Custer offered advice informed by his own experiences. “Learn how to fail quickly and fail in a small way,” he said. “When we launched that second product and we failed, it was a big failure. I was already all-in, and it was a huge learning experience that really formed the company that we have today. So, in hindsight, it was all worth it.”
11 tips to Kick off a kickstarter campaign By Grant Stimmel Cash raised through Kickstarter, perhaps the best-known crowdfunding platform, has helped launch more than 170,000 projects in the last 10 years. Its most successful campaign collected more than $20 million. Although the site imposes rules— like requiring honesty and clear presentation—nearly anyone can use it. Check out some tips for Kickstarter success: The product can’t suck If 20 friends or family members won’t chip in on a project, strangers on Kickstarter won’t either. If the product isn’t innovative, it’s going to bomb once the campaign goes live. 1
Cool it with the rewards Nobody wants a T-shirt that promotes a product. In fact, they’re a distraction. Stick to just a few rewards—ideally three or four. 2
Lower expectations (and the public funding goal) Say an entrepreneur could launch a product on $50,000 but decides to raise $100,000. With a public funding goal of $100,000, raising $99,999 won’t produce a dime. So set the goal low. Plus, it looks good to blow past it. 3
A picture’s worth a thousand words… and $1 million A campaign should bring to mind a children’s book, not a dictionary. People love looking at high-quality images, so don’t use something a cousin shot with an iPhone 6S. 4
Use an over-the-top campaign title Which headline seems more likely to attract a click? “Wireless Headphones Built for the Modern 5
Traveler” or “The BEST Wireless Headphones Ever!” The second. Add text to the hero image A good Kickstarter cover image could attract tens of thousands of dollars. Pick the best, clearest product thumbnail and add a text overlay. But please, lay off the Comic Sans font. 6
Launch the project in a popular category About 90% of Kickstarter funding comes from the three most popular categories: games, technology and design. They attract the organic Kickstarter community traffic that provides 60%–70% of funding. 7
Run Facebook ads Yes, Zuck’s been in hot water lately, but Facebook remains the most powerful advertising platform on the planet. And those campaigns that are raising millions of dollars? They’re driving traffic via lots of ads. 8
Limit the campaign video to three minutes Only 25%-30% of visitors watch a campaign video to completion. The others drop off around the 30 second mark. 9
Write weekly campaign updates Updates develop a deeper connection with backers. And cross promote other projects in your update. 10
Take risks—if it fails, launch again Barriers to entry could not be lower. If a campaign bombs, just make another one. 11
Grant Stimmel is managing editor of ProductHype, a new product blog.
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BespokE PosT An eleventh-hour pivot delivers the goods—monthly While their peers at Northwestern’s Kellogg School of Management were nailing down jobs before graduation, Steven Szaronos and Rishi Prabhu were hatching other plans. They didn’t want to go into investment banking, consulting or tech—they wanted something smaller, perhaps working for a startup. After looking into startups, the two decided to build their own project from the ground up. Their idea: A QR code-reading ad tech business. “We applied to a bunch of accelerator programs, and we got into one that was located in New York,” Szaronos told Luckbox. “We worked on [the idea] for about two-and-a-half months as part of this accelerator program, and we got to this moment where we lost interest, passion and conviction in the initial idea.” Although QR codes could be found virtually everywhere in 2011—when the two came up with their business venture—the only people they ever saw scanning them were each other. That, Szaronos said, seemed like a bad omen for the future of QR. “The accelerator program was in their first year,” he said. “So they said, ‘Well, that’s great, but you better fucking come up with something for demo day, because we’re not going to have one of our companies be a failure in three months.’” With a little over a week before
Name: Steven Szaronos Age: 36 Home: New York Education: Northwestern University, MBA
demo day, the duo came up with their new business idea: A compelling e-commerce experience designed to introduce a male audience to interesting products. They ran with it. And after presenting their idea on demo day, they noticed people seemed interested. That idea would evolve into what is now Bespoke Post (see Gift Guide p. 38), a monthly male-centric subscription box service. “We just had the practical need to move very, very quickly,” Szaronos said. And they did. The demo day took place in mid-September, and by mid-October the team began building their subscriber base. Their first curated box, which shipped the following month, went out to over 80 subscribers. By April they hit their 1,000-subscriber milestone. More than eight years later, Bespoke is a multi-million-dollar business that employs about 45 workers, maintains over 150,000 subscribers and has curated over 240 custom boxes, which it sells for $45 and up. Subscribers buy an average of four to five boxes a year. Asked about growth potential for new subscription boxes in a seemingly saturated market, Szaronos spoke optimistically. “It’s kind of natural that you’ll see a lot of people move into a new industry or a new business model,” he said. “But if you focus on the core experience, you can still be successful.” And for new side hustlers, he said it’s important not to focus on overengineering an idea too early. “Don’t worry about what things are going to look like a year or two from now,” he said. “You’re going to learn so much that your vision for what you might look like a year from now could be totally different.” Demo Day When an accelerator startup pitches a new business to a large audience of investors
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mysTery TackLe Box Give a man a fish, teach him how to fish—or sell him tackle Recognizing the lack of fishing-focused communities on Facebook in 2010, Ross Gordon, who’s passionate about the sport, created the Bass Fishing Favorites page. Little did he know, that page would help him launch a side hustle—later a full-scale company—that this year will earn $25 million to $30 million in revenue. In its early days, Bass Fishing Favorites was among the largest fishing fan pages on Facebook, growing to over 65,000 followers in its first two years. Today, over 150,000 followers call it home. But Gordon initially had no idea what to do with his newfound congregation of anglers. While maintaining the fishing page, he founded CraftJack, a lead-generating company for the home improvement sector, later acquired by HomeAdvisor. In the interim, he was getting more involved with bass fishing himself, and that led him to identify a business opportunity for his page. “The more into [bass fishing] I got, the more overwhelmed I became with all the different products on the market,” Gordon told Luckbox. “Somebody could simplify this very complicated sport for me—send me two different lures each month based on what was meant to be used for that time of year.” But nobody offered such a service. So Gordon figured he would. In 2012, he launched Mystery Tackle Box (see Gift Guide p. 38), a fishing-focused monthly subscription box that introduces anglers to a variety of custom-curated lures and tackle. The debut box shipped the following August.
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“The first month, I believe we shipped out 458 boxes,” he said. “Most of those customers came from the Facebook page.” But Gordon kept the subscription box a side hustle while he continued to work for CraftJack until late 2014. “It got to the point where I was spending the majority of my day thinking about Mystery Tackle Box,” he said. “That was when I realized I needed to do this full time.” And from there, the company kept growing. Mystery Tackle Box is now a subsidiary of Catch Co., of which Gordon is the founder and CEO. The umbrella organization owns and operates 10 fishing brands, including Karl’s Bait & Tackle and BioSpawn Lure Company. When asked if he initially had
any idea how big Mystery Tackle Box would become, Gordon said he forecasted it would reach 20,000 to 30,000 subscribers. “I like to say that I had absolutely no idea,” he said. “It was literally just something I was passionate about—it was a side project. By its second month, Mystery Tackle Box had nearly doubled its subscriber count to around 800. And although the business is seasonal, with some subscribers pausing their subscriptions during months they don’t plan to fish, today the service boasts a peak of 115,000 subscribers. When asked what advice he would offer to new side hustlers, Gordon said, “Don’t think about it, just do it.” “For some reason, a lot of people are just really scared to take that
next step,” he said. “At the end of the day, your downside risk is however much upfront capital and time you need to invest, but your upside risk is happiness for the rest of your life and potentially something incredibly lucrative.”
Name: Ross Gordon Age: 36 Home: Evanston, Ill. Education: Yeshiva University, B.A., English
About Those Boxes The rise of the subscription box industry has made some unusual names sound familiar, among them are Birchbox, Loot Crate, Dollar Shave Club and BarkBox. Subscription box businesses enjoy a recurring revenue model because subscribers pay regularly to receive curated boxes of goods spanning a wide variety of themes.
Cameo Snoop Dogg could sing ‘Happy Birthday’ to you Chicago-based Cameo may not have existed had it not been for Arizona Cardinals outside linebacker Cassius Marsh. Marsh didn’t create the company, but he inspired Steven Galanis, one of the men who did. The Cameo website and app enable users to book celebrities to film personalized video shoutouts, birthday greetings, roasts and almost everything in-between. The 20,000 personalities available include the likes of Shark Tank shark Kevin O’Leary, rapper Snoop Dogg, comedian Gilbert Gottfried and adult film star Stormy Daniels. But what is now a 125-employ-
ee-strong company got its start when Galanis, who at the time worked as a senior account executive for LinkedIn, was giving his friend Martin Blencowe a ride to Chicago’s O’Hare International Airport. “He showed me this video that Cassius Marsh, then of the [Seattle] Seahawks, recorded for one of Martin’s friends,” Galanis told Luckbox. “Martin got Cassius Marsh to congratulate his good friend Brandon on becoming a father for the first time, and Brandon loved his gift so much that he put it on Instagram—said it was the best thing he ever got.”
Name: Steven Galanis Age: 31 Home: Chicago Education: Duke University, B.A., History
Why settle for an autograph? Cameo can deliver a personalized message from a star.
IF sOmeone else TakEs thiS idEa anD becOmes a bilLionaiRe … couLd yOu Live wiTh yOurselF? december 2019 | luckbox
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ec the on g om ig y Galanis, himself an avid autograph collector, said he and Blencowe both realized that videos like Marsh’s had potential to become “the new autograph.” “I just could not stop thinking how cool this thing was,” he said of the idea. “I thought, you know, an autograph’s cool, but how much cooler is this?” The day after he gave Blencowe a ride to O’Hare, Galanis found himself back at the airport—this time to fly to Los Angeles and hash out the details with Blencowe. The two, along with Devon Townsend, would eventually become Cameo’s three co-founders. The car ride that incubated the idea took place in October 2016. From there it became Galanis’ side hustle until Jan. 5, 2017—his last day at LinkedIn. The first Cameo sold the following March. “That last quarter I was at LinkedIn, I was probably the worst person at the company,” Galanis said. “But I think that really gave me the conviction that this was something I could pursue, because no matter how hard I tried, I could not stop thinking about it.” Cameo has gone on to sell more than 400,000 videos and raise $65.7 million in outside capital, including a $25,000 inaugural investment from the company’s first-registered talent, Cassius Marsh. What ultimately pushed Galanis to make his entrepreneurial leap was something a LinkedIn co-worker said to him while they were in Nicaragua for New Year’s 2017. “He’s like, ‘This idea is too big— if someone else takes this idea and becomes a billionaire and you’re still working at LinkedIn, could you live with yourself?’ And to be honest, the answer was so clearly no that I ended up never going back to LinkedIn,” Galanis said. Galanis extends the same advice to entrepreneurs considering starting their side hustle. “If you couldn’t live with yourself if somebody else built this thing,” he said, “then stop everything you’re doing and go do it.”
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Cocktail Kingdom A vintage book collector builds a barware empire When Greg Boehm was younger, he bought mail-order fireworks from the Carolinas to sell in Westchester County, New York. Later, he worked as a bookie. But his first “real job” was working data entry for his family’s book publishing company, Sterling Publishing. “Among other things, we published a couple books about cocktails,” Boehm told Luckbox, “including one that ended up selling over a million copies by a guy named Salvatore Calabrese, a famous bartender from London.” Sometime later, Boehm would amass what is likely the largest collection of antique cocktail books in the world, and start his own publishing company, Mud Puddle Inc. While Mud Puddle would serve as a vehicle for Boehm to publish reproductions of what he called “some of the most important” cocktail books from his collection, his book-selling ventures had much humbler origins. “I was actually selling [antique cocktail] books on eBay that I had triplicates and quadruplicates of,” he said. “And the first few customers on eBay were a couple of very famous people in the cocktail bar business.” The “Cocktail Renaissance” had just begun in New York, and at the time, Boehm was importing barware from Asia. Before long, some of his newfound eBay connections were asking him to bring over barware for them, too. “I couldn’t carry everything, so I had it shipped in a container, and then that turned into a 20-foot container, and then a 40-foot container,” he said. “At that point, we started designing our own barware because it wasn’t really feasible—we were actually too big for the small manufacturers we were working with.” So what started with selling cocktail books organically grew into the fullblown barware manufacturing and
distributing company Cocktail Kingdom (see Gift Guide p. 39). Mud Puddle stayed larger than Cocktail Kingdom for what Boehm called “a long time,” but the barware company is today four times larger than Mud Puddle. About 65% of Cocktail Kingdom’s sales come from professionals in the bar and restaurant industry. That’s understandable because the products are designed with busy Saturday night bartenders in mind. But home users looking for the same quality from their barware make up the other 35%. Among the benefits of pursuing Cocktail Kingdom on the side, Boehm said, were the opportunities it granted him to gather intel, test his products and make sure there was a market for them before going all in. “If you have an idea and nobody else is doing it, it could be for a couple reasons,” he said. “Maybe nobody’s doing it because it’s not a good idea. But if it’s a good idea, get in there and do it first.” Essentially, Boehm said the key to a successful side hustle is beating the competition to the punch. “You know, it’s hard for people to catch up when you start first,” he said. “If you’re considering pursuing something, now is probably the right time to do it—before somebody else does.”
Name: Greg Boehm Age: 50 Home: New York Education: Ithaca College, B.A., Sociology
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6 SimpLe SidE giGs Looking for side-hustle ideas? Luckbox evaluates the challenges, barriers to entry and profit potential of some of the most popular second-income opportunities.
riDe shaRiNg Working as a rideshare driver via apps such as Uber and Lyft is a really great way to either make some extra income, or to make a full-time income. The customer market has exploded since Uber formally introduced the app-based ride-sharing platform in 2009, and despite the competition from new entrants to this market, there’s still enough business to go around. This side hustle is easy to start and makes money right away. After a $1 rider fee, Uber drivers keep 80% of the fare. Applying to drive for Uber requires a visit to the Uber website to fill out some forms and agreeing to a criminal background check and vehicle inspection. Ride-sharing’s “getting started” score is lower for someone who doesn’t have a car or plans to buy a new one to get into this side hustle. Ride-share drivers don’t need commercial insurance to carry passengers—personal auto insurance suffices. Ride-sharing offers a flexible time schedule and the opportunity to be your own boss. Drivers can maximize their earnings with Uber by working
when prices surge Income during the busiest Potential times. Ride sharing $20/hr may be among the more lucrative side hustles, but comes with significant overhead. Operating expenses cover the cost of gas, maintenance and fees to the company. But don’t forget the relentless wear and tear on the vehicle and the need to deal with some annoying passengers.
RIDE SHARING
4 out of 5 Getting started 4.5 Finding customers 5.0 Low investment 2.5
80%
That’s the portion of a passenger’s fare that an Uber driver gets to keep.
Fare share Drivers’ take-home income economics for ride-hailing versus yellow cab Ride sharing
Yellow cab
Number of rides/day
25
25
Number of working days/month
26
26
Average fare/ride
$13.00
$13.00
Driver’s gross income/month
$8,450
$8,450
Driver’s share
70%
100%
Driver’s net income/month
$5,915
$8,450
Driver’s operating costs/month
$1,500
$5,000
Driver’s take home
$4,415
$3,450
Source: QuanamCap
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ec the on g om ig y
mystERy sHopping
dOg waLkinG
Perhaps the most Income mysterious facet of Potential mystery shopping Varies (secret shoppers) is whether anyone makes a decent, regular side income doing it. That’s not to say it’s a bad side hustle—many mystery shoppers report enjoying it—and it’s not difficult to get into it. One downside, however, is that the mystery shopping industry is plagued with scams. In fact, if a company asks a prospective shopper to deposit a check, wire money to someone or pay an application fee, side hustlers should probably refuse, according to the Federal Trade Commission. Luckily, the Mystery Shopping Professionals Association can connect side hustlers with trustworthy opportunities. But even legitimate mystery shopping gigs have downsides. For one, it’s not the most profitable opportunity out there. Some mystery shoppers just receive reimbursement for what they buy, but others receive reimbursement plus a fee and perhaps a bonus. In competitive markets, companies offer less compensation. On the plus side, mystery shopping provides side hustlers an opportunity to shop places they may not have otherwise. They sometimes keep the products they buy, and they possibly line their pockets with a little extra cash. But if consistency is key, there are better opportunities.
How much money Income a dog walker makes Potential depends on several $14.48/hr factors, including location, walk length, number of walks per day, tips and local competition. Side hustlers who don’t want to build a dog-walking business on their own have options. Wag and Rover, by far the biggest platforms, take a chunk of the fee. Rover gets 20%, while Wag takes 40%. In addition, some Wag and Rover walkers complain that competition can become cutthroat, especially in metro areas. On average, a dog-walking side hustler can expect to make $14.48 per working hour, according to payscale.com.
DOG WALKING
4.3 out of 5 Getting started 4.0 Finding customers 3.0 Low investment 5.0
MYSTERY SHOPPING
4.0 out of 5 Getting started 4.0 Finding customers 3.0 Low investment 5.0
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Domain Flipping In 2010, QuinStreet spent $49.7 million acquiring the “carinsurance. com” domain, making it among the most expensive web domains ever sold and inspiring countless hopefuls to enter the niche side hustle of domain flipping. But stories like those aren’t the norm, and the likelihood of scoring big by selling domains isn’t great. Anyone can register a domain through Google Domains or GoDaddy, but unregistered domains aren’t free. Flippers should remember that regardless of how valuable they may think a domain is—or how much GoDaddy’s appraisers think it’s worth—there’s no guarantee anyone will buy it. It’s not uncommon for flippers to get stuck with a domain that doesn’t sell for years. Time is money, and each year a domain isn’t sold, the
owner has to make Income another payment to Potential continue holding it. Unpredictable Flippers also pay for appraisal services and featured listings in auctions. Domain flipping can be profitable—extremely so. But reaching that point requires knowledge, skill and sometimes luck. Side hustlers looking for steady, supplemental income would be better off looking elsewhere.
DOMAIN FLIPPING
2.6 out of 5 Getting started 4.0 Finding customers 1.0 Low investment 3.0
Odd Jobs Although odd jobs Income score well in the Potential ranking system, not $8-$43/hr all of them feel great in real life. Income potential varies greatly, depending upon expertise, location and number of hours a week. There’s no guarantee of finding enough jobs to supplement regular income in a meaningful way. But side hustlers can find odd jobs through well-known channels like Takl, TaskRabbit and Upwork. TaskRabbit, launched in 2008, specializes in connecting consumers with helpers to accomplish everyday tasks, such as deliveries, moving furniture or assembling furniture. Taskers can complete jobs that appeal to them when they want—on their own schedule.
18–34
The age group bestrepresented among freelancers, with 42% of them engaged in independent gigs.
House cleaNing Countless websites Income explain how to Potential get started in the $25/hr house-cleaning side hustle. Start-up costs can be minimal, ranging from about $50 for cleaning supplies to $350 to become licensed and bonded. Costs increase with paid advertising, but social media and word of mouth cost nothing. To make $1,000 a month would require working 11 or 12 hours per week at $25 an hour. Side hustlers can also charge by the room if prospective clients aren’t willing to pay an hourly rate. It makes sense to research the target audience and discover neighborhoods where residents will pay a higher rate. Finding customers can pose problems. Cleaning service companies have been around a long time and can compete effectively. But side hustlers can have lower overhead than companies and can thus offer lower prices. Success requires cleaning skills good enough to attract repeat customers. No cleaning skills? Try becoming a matchmaker the way Chris Schwab did with Think Maids (p. 16).
HOUSE CLEANING
Source: Upwork
4 out of 5 Getting started 5.0 Finding customers 2.0 Low investment 5.0
ODD JOBS
4.6 out of 5 Getting started 5.0 Finding customers 4.0 Low investment 5.0
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g gi y e om th on ec
TrAdinG On tHe sidE It should come as no surprise that trading ranks highest among the side hustles Luckbox readers choose to pursue. In each issue, the magazine’s staff seeks to empower active investors to feel more confident, take control of their trading and investment decisions, and press for better outcomes. In this special section, Luckbox explores trading as a side gig, introduces a trader who’s been fascinated with the markets for more than half a century and offers expert advice on maximizing the after-tax returns of an active-trading side hustle.
paRt-Time tradiNG By Victor Jones Uber and Lyft drivers may seem to dominate the gig economy, but only about 1% of the workforce relies on app-based platforms as their single source of income, according to the Bureau of Labor Statistics. Yet, even without that high-tech help, masses of Americans are finding a place in the new independent workplace, either full-time or parttime. In fact, 43% of workers who hold down a regular full-time job are supplementing their income with second jobs, according to a Bankrate survey. Surprisingly, 40% of those side hustlers are already successful in their main gigs. They make more than $80,000 a year and hold postgraduate degrees. So, they’re taking on a second job not to make ends meet, but to have more cash to spend. That raises a question—what are the best ways to generate extra income while spending less time doing it? Luckbox readers aside,
could part-time trading become the new go-to side hustle? Take a look at a few reasons why. Few barriers to entry. Although it takes some money to get started, saving to invest could present a better opportunity than simply stashing cash in a savings account or investing start-up expenses in a side gig. Putting money into a savings account is the same as lending it to the bank. Deposits are federally insured up to a certain amount, but with current ultra-low interest rates many banks pay little to no interest, on that hard-earned cash and the prospects seem dim for higher interest rates anytime soon. Most brokerage accounts require zero minimum to open, so traders
don’t need to invest a lot of money. Beyond some small amount upfront, they really just need a smartphone and an internet connection to get started. There’s definitely no need for a car. Unprecedented access to markets and technology. Aids to trading have never been more readily available or cheap. In the past, investors paid high costs and fees to buy even a single stock, but the industry has now reduced or eliminated commissions. Most brokerages charge nothing to buy stocks, while most investing apps are free to download and use.
41% of Luckbox readers cite securities investing or trading as a “consistent source of income.” Source: Luckbox reader’s survey
Easy access to information and education. Following the markets
tHe pUblic haS never before had sUch conveniEnt access to markets Or such inexpEnsive tradiNg technologY. december 2019 | luckbox
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ec the on g om ig y and finding companies that are good investments requires effort, but information and training for active investors has become available through live and archived online videos from the tastytrade financial network or via user-friendly apps like dough. They can offer a better use of side-hustle hours than spending time driving for a ride-sharing company or toiling over freelance work. Better returns. Trading also presents an opportunity to outperform a savings account. Yes, it’s possible to lose money investing, and it’s easy to get caught up in trying to beat the stock market or make a huge profit. But focusing on making a profit of 1% or 2% per trade can prove more beneficial. That’s not only feasible but provides a better return than the fractional interest rates paid by the average bank savings accounts. Finally, profits from trading are taxed between 15% and 20%, depending on the holding period of the investment. For some, that might be lower than their ordinary income tax rate. Trading’s not about getting rich overnight, which for many isn’t the goal of a second income stream anyway. About 85% of side hustlers make less than $500 per month from their second job, according to the personal loan company Earnest. So, look at it this way—trading can afford a viable second or even third income for the more than 50 million people with side hustles in the gig economy. Victor Jones serves as CEO of dough, an investing app with zero account minimums. Jones was formerly director of trading and operations at TD Ameritrade leading trading innovation initiatives in the United States and Asia. @tradewithdough
dough: A new app-based, commission-free brokerage firm bills itself as a provider of content for “the next generation of investors.”
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meEt jameS the TradEr A longtime part-time trader continues to learn new tactics and still enjoys winning James Heidbreder developed an interest in trading when he was still in high school. First, he heard his economics teacher discuss the markets with a University of Colorado finance professor. Then he read Louis Engels’ book, How to Buy Stocks. These days, his favorite trading strategy is covered calls and vertical options bounded by supply and demand zones. He also likes headand-shoulders patterns or bull-and bear-flag formations. “The tastytrade method—‘trade small & trade often’ goes contrary to ‘let your winners run,’ but the approach is working for me,” he says. “Supply and demand zones, plus the Follow Traders feature on the tastytrade platform are key for me.” Heidbreder attributes 0% of his successful trades to chance. “Luck plays little role,” he says. “Sound strategy and tactics determine a trader’s consistent profitability and yield.” But he advises caution. “I began trading at tastyworks before I was competent in using the platform,” he recalls. His success is based on following tastytrade traders and then trading only when their trades fit the supply and demand zones he plots on the TD Ameritrade thinkorswim platform. For him, a good chat could lead to a good trade. “In the ’80s, each day a good friend and I would talk ‘trading,’ and we made money.” The friend passed away and Heidbreder fell out of the habit of trading. “But now the folks at tastytrade provide trading ideas in their daily
programming in the same manner as my friend did,” he maintains. He advocates learning from mistakes. He took a lesson to heart when his infatuation with a pharmaceuticals stock led him to disregard his supply and demand zones. He wound up losing nearly half of his investment, but it helps keep him focused on the fundamentals.
Winning on the side Analysis of Heidbreder’s trades verify the performance of this tastyworks account from July 24, 2018 through Nov. 1, 2019. Tactic
Profitability
Short Strangle
86%
Naked Call
100%
Vertical
100%
Iron Condor
100%
Trades: 96 Return: 58%
Follow Traders: Viewers of the tastytrade online network can follow the trades of their favorite on-air personalities in real time with the help of a free feature within the tastytrade app (click “View Trades”) and in the tastyworks brokerage platform. Heidbreder says the feature provides actionable trading ideas from legendary traders like tastytrade’s Tom Sosnoff and Tony Battista.
Learn more about Follow Traders
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Tax tiPs fOr Traders Some active traders—including side hustlers—may want to qualify for Trader Tax Status By Robert A. Green, CPA
Active investors can take advantage of “trader tax status” (TTS), an IRS designation that some accountants call “tax-loss insurance.” It enables traders who meet certain criteria to deduct all sorts of business expenses. Consider an example of the potential savings. Suppose an active trader’s TTS business expenses and home office deductions add up to $20,000, and her federal and state tax bracket is 35%. Income tax savings would amount to about $7,000 annually. The catch is it’s not always clear exactly who qualifies as an “active trader.” It’s encouraging that in some instances the IRS confers active-trader status on some busy side-hustle traders who still hold down a day job. Yet it’s still not always easy to figure out who gets the tax break. Congress hasn’t passed a law with objective tests for eligibility, and the IRS rules can seem vague. In the absence of clear definitions, interpretation of subjective case law has led to a two-part test to qualify. First, trading activity must be substantial, regular, frequent and continuous. Second, the trader must seek to catch swings in daily market movements and profit from short-term changes instead of generating income from holding investments long-term. Those terms may seem authoritative, but perfectly reasonable stakeholders interpret them in wildly differing ways. Left in the lurch, IRS agents often refer to four factors to determine whether trading activity qualifies as a security-trading business. The four criteria include the typical holding periods for securities bought and sold, the frequency and dollar amount of trades during the
year, the extent the trader pursues the activity to produce income for a livelihood, and the amount of time the trader devotes to the activity. Once again, the words “substantial, regular, frequent and continuous” aren’t precise. Case law doesn’t provide any exact numbers, either. Still, experienced accountants can begin to quantify the standards based on what they’ve discerned in courtroom trends. Call them the “Golden Rules.” Golden Rules Let’s begin with the big three requirements that the IRS can verify more easily than other qualifications:
Volume: Making 720 trades a year (two per day) appears to qualify a trader as active. The buy and sell count as two trades. That amounts to about four trades per day, close to four days per week. It’s 15 trades per week and 60 trades a month. Frequency: To prevent the IRS from challenging a TTS claim, it’s wise to trade nearly four days per week or 75% of available trading days. Court cases have denied TTS with a 50% frequency. Holding period: Active traders make mostly day trades or swing trades. The IRS has named the holding period as the most critical factor and has said the average holding period must not exceed 31 days. The IRS can verify volume, frequency and holding period with some accuracy, but encounters more difficulty with the following factors: Hours: To qualify as active, traders must spend more than four hours a day, almost every market
day, working on trades. All trading activity counts, including the execution of trade orders, research, administration, accounting, education, travel and meetings. Lapses: Active traders seldom stop trading for extended periods during the year but can take vacations, sick time and personal time off. Intention: Traders should plan to run their market activities as a business and make a living—but not necessarily as a primary means of making a living. Operations: Requirements for TTS include having business equipment, using business services and operating from a distinct office. Active traders tend to have monitors, computers, mobile devices, cloud services, trading services, subscriptions, education expenses, high-speed broadband, wireless and a home office. Account size: Active traders may consider having $25,000 on deposit with a U.S.based broker to achieve “pattern day trader” status. Accountants prefer clients have more than $15,000 available for trading other financial instruments.
Check with an accounting professional for the best tax advice on individual circumstances.
Robert A. Green serves as managing member of GNM, a CPA firm focused on traders, CEO of greentradertax.com.
Side-hustle tRaders who hold Down a day job Could be viewed as activE tradeRs in the Eyes of the irs. december 2019 | luckbox
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uBer and lyFt: ThE roaD to ProfitaBilitY This contrarian analyst is not selling ride-sharing companies short By Anthony Breen
Uber (UBER) and Lyft (LYFT) can seem almost synonymous in North America—functionally equivalent for drivers and riders in most metro areas. Since their IPOs earlier this year, their shares have traded almost in lockstep. But in the wake of WeWork’s recent failed-IPOturned-bailout, public shareholders are demanding a clear “pathway to profitability,” and revenue growth alone no longer seems like enough. To assuage shareholders, Uber and Lyft both say they aim to achieve “adjusted” profitability sometime in 2021. Though 2021 still feels far away, that’s significantly sooner than in the timelines both companies provided during their IPO roadshows. Given Lyft’s lower cost structure and its focus solely on North American transpor-
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tation, the compny’s route to profitability appears less complex than Uber’s. That makes Lyft shares the better buy for those looking to add ride-sharing exposure to a portfolio. Lyft has lower corporate overhead because it had to be more efficient with capital than Uber during its privately funded growth phase. As recently as 2014, Uber had raised 30 times more capital from private markets than Lyft. That funding gap narrowed over the following years, but Uber has still raised five times as much capital as Lyft. The funding gap has encouraged Lyft to instill a corporate culture focused on efficiency. Subsequently, Lyft has not followed Uber to overextend into food delivery, freight and ride-sharing outside North America. With three rounds of corporate
PHOTOGRAPH: SHUTTERSTOCK.COM
Uber touts overall revenue growth of 20%. On the other hand, Uber is losing approximately $543,000 per hour, putting the company on pace to lose $8 billion this year. While Lyft’s numbers look better, a new California law may impede profitability. With both stocks trading below their IPO prices, and 30% to 40% below their post-IPO highs, analyst Anthony Breen sees an accumulation opportunity—and prefers one company.
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layoffs since its IPO, Uber is feeling pressure to improve financial results quickly because of its Softbankinspired cash burn levels. Uber had negative $2.5 billion cash flow from operations in the first nine months of this year. Lyft’s negative $59.5 million cash flow from operations in the same period looks saintly in comparison. Uber already has $4.5 billion in long-term debt outstanding. Uber’s outstanding bonds are high-yielding “junkrated” corporates: They’re rated CCC+ by Standard & Poors and B3 by Moody’s. Conversely, Lyft has no long-term debt outstanding. Revenue, bookings and take rate Uber and Lyft’s revenues are reported net of driver pay, which makes sense because the drivers work as independent contractors. But that method of accounting understates the economic impact of the businesses, much the way revenue as a percentage of gross merchandise value (GMV) caused many investors to underestimate Amazon for years. “Bookings” is the GMV of ridesharing, which includes the total fare paid by riders and more accurately measures how much economic activity Uber and Lyft are facilitating. Revenue as a percentage of bookings is known as “take rate.” In 2018, Uber’s average ridesharing take rate was 21%, but varied between 12% and 24% depending on the country. Lyft’s 2018 take rate was 26.8%. Drivers want the take rates to be as low as possible, so they get paid a higher percentage of fares. In North America, many drivers operate on both apps and drive for the one they feel is providing a better take rate. Aware of that, both companies compete for drivers by providing alternating incentives to keep them on their platforms.
AB5 California Assembly Bill 5, or AB5 law, goes into effect Jan. 1 and limits opportunities to classify workers as independent contractors instead of as employees. But drivers will move to full-time employee status gradually. A base number of full-time drivers in each city may help Uber and Lyft optimize route networks, but it would be economical to employ only a low percentage of the total driver pool full-time. A referendum on alternative legislation is scheduled for November of next year. In the meantime, Uber and Lyft say they will pass along to consumers any AB-related cost increases. Many Uber and Lyft drivers appreciate the flexibility of working as independent contractors but would like higher pay. After accounting for vehicle expenses, many are barely making more than minimum wage— and, in some cases, less. Uber and Lyft are responding by raising fares and finding ways to increase drivers’ productivity. Private equity’s influence and lockup expiration Despite private equity’s penchant for publicly listing portfolio companies just before revenue growth slows, they may have left some meat on the bone with Lyft. Lyft’s 2019 revenue growth should be around 66%. Uber is too large to grow its top line that fast anymore, but its revenue growth did reaccelerate to 30% in Q3 2019. With Uber and Lyft shares down about 50% from IPO highs, public investors now have an opportunity to invest at better prices than some private rounds. Uber’s Series E, F, G, G-1, G-2 rounds were all raised at prices above $30 per share. General Motors (GM) led Lyft’s $1 billion Series F round at $26.88 in January 2016. Alphabet’s (GOOG) CapitalG private equity arm led Lyft’s $1 billion Series H round at
$40 per share in October 2017. With the amount of private capital raised, lockup expiration dates have loomed large over ridesharing investors. Lyft’s lockup expiration was August 19, 2019, and officer sales have been limited in size, mostly to cover taxes from stock and option grants. There have been no reports of either Alphabet or General Motors selling their Lyft stakes. Uber’s lockup expired on November 6, 2019, and it will be interesting to track sales disclosures (and lack thereof) over the coming weeks. Despite financial media’s current “WeWork on Wheels” analogies, profitability for the ridesharing duopoly should come in due time. Lyft’s market capitalization to trailing revenues ratio has fallen from about 6x to 3x since the IPO. Despite this, a 3x trailing revenue multiple going forward, would lead to future share price appreciation in line with revenue growth. Anthony Breen, CFA, co-founded Alphamont Funds LLC, a registered investment advisory specializing in concentrated equity portfolios. @breen_anthony
36%
of Americans use ride-sharing apps. —Statistica
Disclosure: The author owns and manages funds that are long Lyft shares with a dollar-weighted average cost of $42.16, with no positions in Uber shares. A close below Lyft’s low of $37 would trigger re-evaluation of the long thesis.
UBER vs. LYFT Key financial metrics (2018) $50.0B Uber Lyft
$8.1B
$11.3B $2.2B
Gross Bookings
Revenue
$-1.8B* $-0.9B EBITDA**
*Uber’s earnings exclude proceeds from the sale of its Russia and Southeast Asia businesses **EBITDA = adjusted earnings before interest, tax, depreciation and amortization
puBlic iNvestOrs havE an opPortuniTy to buy riDe-shaRing sTock at lower priCes tHan in somE PrivaTe rounDs. december 2019 | luckbox
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trends life, luxury & the pursuit of happiness
HOLIDAY GIFT GUIDE
It’s Time! The very best in tech, gear, games, cigars, books, barware and booze to treat yourself or gift your friends Photography by Garrett Roodbergen
Meticulously restored antique pocketwatch movements
Americans bought more than 35 million smartwatches last year, but Luckbox remains partial to old-school timepieces. For our money, nobody does analog quite like Vortic Watch Company. The firm rescues the movements from inside century-old pocketwatches about to be melted for the gold in their casings. It then transplants those mechanisms into newly minted wristwatches. The oversize face is substantial, and the detail is simply stunning. Each watch is a timeless masterpiece.
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The Burlington 010 (46mm), The American Artisan Series, $2495, vorticwatches.com
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SUBSCRIPTIONS
MistoBox cut a deal with Mark Cuban on Shark Tank, and now it offers a custom subscription box for coffee enthusiasts.
Mystery Tackle Box is the go-to subscription box for season- and species-specific assortments of curated lures and tackle. Delivered monthly.
MistoBox, $10.95 + shipping, mistobox.com
Mystery Tackle Box, $16.99, mysterytacklebox.com
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Bespoke Post purveys trend-forward goods, gadgets and gear. Customers can switch boxes and choose among optional add-ins. Bespoke Post, $45.00 + shipping, bespokepost.com
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SPEAKING OF SUBSCRIPTIONS … Luckbox makes a stellar stocking-stuffer. Give the gift of Luckbox. $39.99, 10 issues, getluckbox.com
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trends
BAR & CIGAR Misc. Goods Co.’s Black Ceramic Flask may seem a bit flashy, but we’ll make an exception and include it. Black Ceramic Flask, $92, misc-goods-co.com
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Cocktail Kingdom curates hundreds of upscale bar accessories and glassware for professional and home bartenders. Raise the bar. Cocktail Kingdom, prices vary, cocktailkingdom.com
The Cradle Glass is designed to enhance neat whiskey drinking. It magnifies subtle notes for the most sophisticated noses. The Cradle Glass, $36, cradleglass.com
Plasencia grows its own tobacco in Honduras and Nicaragua and handcrafts each cigar in its premium lineup. The Alma del Campo is creamy with notes of coffee and nuts. The Alma del Fuego is savory, with citrus and cashew notes. The Alma Fuerte (top) boasts Plasencia’s best aged tobaccos with bold, intense flavors of chocolate, plum and cinnamon, and it has finishing notes of oak and molasses. Plasencia Cigars, prices vary, plasenciacigars.com
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SPIRITS
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Whitley Neill distills extraordinary handcrafted botanical gins. Luckbox favorites? The Quince and the Rhubarb & Ginger.
Bourbon Barreled Kentucky Wild Gin is a double gold winner in the San Francisco World Spirits Competition. The oak finish sets this gin apart.
Whitley Neill Gin, ~$30, whitleyneill.com
New Riff Kentucky Wild Gin, ~$35, newriffdistilling.com
Aberlour’s A’Bunadh Alba offers cask-strength scotch whiskey aged in white oak bourbon casks. This new classic is a master distiller’s triumph. Aberlour A’Bunadh Alba, ~$90, aberlour.com
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Rough Rider Bull Moose Rye Whisky earned the Chairman’s Award in the 2018 Ultimate Spirits Competition. Vanilla and cinnamon notes for the perfect Hot Teddy Toddy. Rough Rider Bull Moose Rye Whisky, ~$40, lispirits.com
Pine Barrens crafts the award-winning Cherrywood Smoked Single Malt Whisky and the oak-finished Barrel Reserve Botanical Dry Gin. Long Island has spirits!
Clyde May’s is steeped in 70 years of tradition. May’s Straight Rye and Alabama Style Whisky are two great ways to catch up on that history.
Pine Barrens, $40-$55, lispirits.com
Clyde May’s Whiskey, $30-$45, clydemays.com
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HEADPHONES
Status’ BT One wireless headphones look good, sound even better and don’t break the bank. Not into black? They also come in brown. Sound value. BT One, $99, status.co
Bose’s Alto Audio Sunglasses offer the unrivaled sound of Bose in a way one has to see to believe— literally. Pairing syle with quality, the glasses use Bluetooth and sport a microphone. They also protect the eyes from UV rays. Best of all, its speakers are angled to keep music private. Bose, $200, bose.com
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trends
GAMES + BOOKS
Disgraceland was a podcast first and then became a book. It’s a must-read.
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Disgraceland, $28, disgracelandpod.com/book
Black Angel, the new, highly coveted, must-play, humanity-saving sci-fi strategy board game, is the latest from the creators of Troyes.
Exploding Kittens, a fast, fun card game, belongs in every gamer’s collection. Its designers have sold more than 8 million games worldwide.
The Dead Man’s Deck is No. 1 with a bullet among the 1,500 collectible decks sold on the site. The aces and eights are blood-stained as an homage to Wild Bill.
Black Angel, $80, pearlgames.be
Exploding Kittens, $20, explodingkittens.com
The Dead Man’s Deck, $14, playingcarddecks.com
Hacking Whiskey explains the science of whiskey drinking. Go ahead, conduct some experiments. Hacking Whiskey, $20, Amazon.com
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The Ultimate Cigar Book plumbs the depths of cigar culture. Sophisticated readers should, too. The Ultimate Cigar Book, $24, Amazon.com
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FINANCIAL FITNESS
Shredded on the Side
Side hustles go better with physical conditioning By Jim Schultz
T
hese days, everybody needs a side hustle. A professional house painter oversees fishing expeditions on the weekends. A nurse practitioner sews baby clothes in her spare time. A financial talk show host moonlights as a physique transformation consultant—not that that’s ever been done, but if it had, it would probably be housed at livefcubed.com. Whatever the specifics, side hustles just make sense. In today’s economy, job security isn’t what it once was, and those entering the workforce today seem more than happy to exchange the security of a stable salary for the flexibility of several sources of income. Fair enough. Diversification in a career path is as sensible as diversification in a stock and options portfolio. But what second career should someone choose? An avid weightlifter who’s also a dedicated nutritionist might do well to choose physique transformation as a side hustle. It’s a matter of getting shredded on the side. Side hustles fill several voids. First, they afford the opportunity to do something one truly enjoys and feels passionate about. Second, they raise the possibility of enhancing one’s quality of life by bringing in income
and opening doors to greater accomplishments. Third, they can turn into perfect main hustles. Win. Win. Win. Now add physical conditioning. Take the example of a professional painter and suppose he teaches how to catch bass on Saturday mornings. With impressive bicep peaks he’ll paint houses better and reel in a bigger, badder bass. That nurse practitioner who strings togethers onesies on Sunday evenings will provide better patient care and stitch up even cuter baby garb with a polished glute-ham tie in. And that financial talk show host who goes full throttle on people’s fat loss? With a sculpted serratus, he’ll be able to spout more strategic adjustments and steer more clients toward radical transormation. Ask anyone who has fundamentally altered their own physique, and they will say the same thing. Was it hard? Yes. Was it challenging? More so than they ever imagined. But was it worth it? Yes, in ways they could never have imagined beforehand. Confidence crashes into totally new categories. Energy abounds in quantities unknown since those days of frollicking through the fields as a whippersnapper. And clarity rivals that of Bradley Cooper’s character in Limitless (when he’s “on,” not during the train wreck scenes
An avid weightlifter who’s also a dedicated nutritionist can make a side hustle out of physique transformation.
when he’s “off”). Turning on the faucet of extra income always helps, too. It’s no different from strategically diversifying a portfolio into different assets, across different time frames and with different products. But the beauty of getting shredded on the side? It could be an accountant who doubles as a hitman or a secondgrade math teacher who weekends as a nanny. Both would be far more effective in their main hustles and also their side hustles—ending lives or shaping lives—with feathered tris, separated quads or abs that have abs.
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%
of U.S. adults get the recommended 150 minutes of moderateintensity aerobic exercise and two bouts of musclestrengthening each week. Source: Centers for Disease Control
Jim Schultz, Ph.D., a derivatives trader, fitness expert, owner of livefcubed.com and the daily host of From Theory to Practice on the tastytrade network, was named North American Natural Bodybuilding Federation’s 2017 Novice Bodybuilding Champion. @jschultzf3
39.8% of American adults are obese, including 7.6% with severe obesity. Another 31.8% are overweight. Source: National Center for Health Statistics
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trends
THE POKER TRADE
Vocation or Avocation? Poker playing can work as a side hustle, but it can become a grind full-time By Jonathan Little
T
he perfect side hustle combines profitability with fun and excitement. For anyone who’s good enough, that could mean poker. The probability of making money from playing poker part-time is excellent. But players need a willingness to devote significant time to studying the game. They should muster enough discipline to stick to the games they can beat. And no one’s worth taking seriously unless he maintains a proper bankroll. Attitude counts for a lot, too. Would-be side-hustle poker players soon find out how it feels to play poker nearly every day. Compared with recreational poker, playing semi-professionally requires a drastically different mindset. Think of it as the seat-of-the-pants test. If all of that works out and poker becomes a successful side hustle, it may become tempting to drop out of the nine-to-five routine and make card playing into a full-time occupation. After all, a lot of side hustles grow into full-time jobs. Could poker mean freedom? It depends. Assume a part-timer plays $2-$5 no-limit hold’em at a local card room, which is about the stakes most people are playing when they ask that question about turning full-time pro. That’s the largest game that runs on a regular basis in most local card rooms, and most players who can beat that game feel like they’re decent at poker. Suppose a player makes $50 an hour at that game. By comparison, a certain pro (me) played $5-$10 at Bellagio eight years ago and, over the course of a year
playing about 50 hours each week, I made around $100 per hour. It turns out that 10 big blinds per hour is a solid win rate that most excellent players can achieve, as long as the games are reasonably soft and the rake isn’t egregiously high. So, someone who plays 40 hours per week makes around $8,000 per month, which sounds great. But a few problems arise with that nice $96,000 a year salary. First, no one actually wants to play 40 hours per week. They want to take days off or cut sessions short because they simply don’t enjoy sitting at the table for that many hours. Also, most players feel a desire to take time off when they’re either winning or losing more often than they expected. Average 30 hours per week, and it’s reasonable to expect a $72,000 salary. Note that it’s short-sighted to turn professional without setting aside at least a year’s worth of living expenses and a nice bankroll—at least 5,000 big blinds for no-limit hold’em cash games. So for $3,000 monthly for routine expenses, players need at least $61,000 before even considering becoming a $2/$5 pro. (This is for 50, 100 big blind buy-ins, plus 12 months living expenses: $5 x 5000 = $25,000; $3,000 x 12 = $36,000; $25k + 36k = 61k.) Numerous other factors should influence the decision to become a full-time professional. A player with a family has higher expenses than a single person. It’s also difficult to justify putting in numerous hours at the table while missing the chance
to see the kids grow up. That often results in playing during non-peak hours, which will dramatically cut the win rate. Having a “normal” job that pays well also makes it tough to justify the move to full-time poker. If a player makes $40 per hour at a regular job that provides a nice, secure paycheck, there’s really no reason to rely on poker, even if it pays a slightly higher hourly rate. There’s a lot of value in having no variance in monthly income, even if it is not exciting and requires reporting to a boss. Something most side-hustle players don’t consider when going fulltime pro is that they may not be as good as they think they are. Without a long track record of winning, don’t even consider quitting the day job. It takes at least a 500-hour sample in the game a player plans to play before attempting to go pro. The 500 hours also help grind up an adequate bankroll for the game and establishes a win rate. Even for a top side-hustle player, going totally pro can prove problematic. Advice: love poker as a hobby, but not as a job.
Poker pros play an estimated
20%
of their hands
Jonathan Little, professional poker player and WPT Player of the Year, has amassed more than $7 million in live tournament winnings, written 14 bestselling books and teaches at pokercoaching.com. @jonathanlittle
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TRADER 1. Trading assistant Kobe
2
2. View of the Las Vegas strip
1
3. iPhone with tastyworks
5 4
4. Social media awards and Navigator of the Year Award 5. tastytrade Live on television screen
3
6. Military Air Medal (Afghanistan) 7. MacBook for trading
7
8
6
8. Trading assistant Sheba
MICHAEL SARTAIN Trader and Event Host Hometown Las Vegas Age 42 Years trading Five What got you started on trading? My father was a financial planner and would frequently try to explain to me how the stock market worked. Later in life, after the crash of ’08, I had several family members who felt they were receiving poor financial advice. I took it upon myself to study everything I could find about financial markets and eventually stumbled upon tastytrade.com. I traded in a paper account for about three months, and once I realized how the mathematics worked I became fully invested in the tastytrade trading methodology.
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Favorite trading strategy for what you trade most? I either like to sell 50 point wide put spreads in SPX 250 points below the market, or I like to sell five delta naked puts and 10 delta makes calls. I put my positions on with around 45DTE and I use between 50%-70% of my buying power. Average number of trades per day? Seven What percentage of your outcomes do you attribute to luck? Zero percent. I’m selling puts between five and nine delta, and I’m rolling my positions if they go in the money. My winning percentage so far this year is 100%. Favorite trading moment or best trade and why? In one of my accounts, where I was trading regular 16 delta strangles, I was down
$217,000 last December and came all the way back this summer. Worst trading moment or worst trade and why? February 2018, I decided to give up and just get long the market and then the crash happened. Instead of staying mechanical and continuing to roll, I started expressing an opinion. I got out of it by selling far out-of-themoney put spreads for six months.
Lindsey Pelas, Michael Sartain and Emily Sears (from left) at the 2018 Model Citizen Fund Event.
My side hustle I host and film red carpet charity events that raise money for underprivileged children and animal rescues. Other causes that I host events for include anti-bullying, domestic abuse and care packages for troops overseas. We invite social media influencers, models, athletes and celebrities to help us spread awareness and raise money.
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trends
CALENDAR
DECEMBER
2 Cyber Monday
2 Jupiter enters Capricorn— Rule expansion
2–3 Hustle Con 2019 Oakland, CA
PHOTOGRAPHS: (SANTACON) PA IMAGES; (PHISH) FLICKR/MATTHEW KRAUS; (ROSE BOWL) KIRBY LEE-USA TODAY SPORTS
Santacon London, 2018 SantaCon is coming to town—more than 50 towns across the United States, to be more specific. The annual gathering of elves began in the ‘70s as a performance art protest in Denmark but has evolved into one of the most festive—and infamous—bar crawls in the world. Although SantaCon’s official guidelines include “Don’t get drunk,” some Santas tend to be more naughty than nice, imbibing enough eggnog to fill themselves—and sometimes the sidewalks—with holiday spirits. SantaCon dates vary from city to city.
7 Options Symposium* San Francisco 13 VRX Conference & Expo San Francisco 14 SantaCon 2019 New York 1 4–15 Rolling Loud Music Festival Los Angeles 21 Gann Day & Winter Solstice (Change of trend)
26 New Moon & Solar Eclipse in Capricorn
28–31 Phish’s New Year’s Run at Madison Square Garden New York
JA N U A R Y Phish at Madison Square Garden, 2011
1 2020 Rose Bowl Pasadena, CA 3–5 Wizard World Comic Con New Orleans New Orleans
10 Lunar Eclipse
For the first time, The Chicago Board Options Exchange and tastytrade will jointly host an Options Symposium at August Hall in San Francisco. tastytrade’s Tom Sosnoff and Tony Battista will teach attendees the fundamentals of options trading. Registration for the symposium is free. Topics range from diversifying trading strategies and time frames to portfolios. 2019 Rose Bowl
*For more information visit tastytrade.com (events)
YEAR-END OPTIMISM December begins with a big shift in astrological energy as Jupiter leaves its ruling sign of Sagitarius and enters the sign of Capricorn on Monday, Dec. 2 for a year-long stay. Takeaway? The first few days could be marketdowners. But the year looks to end on a positive note for the stock market. At mid-month, Jupiter and Uranus connect for a burst of unexpected optimism and growth in what no doubt will be the last robust volume week of the year, Dec. 16-20. Watch for a change of trend that Friday—quadruple witching day and the day before the winter solstice—when the Sun enters Capricorn. On Friday, Dec. 27, the Sun and Jupiter are conjunct in the sign of Capricorn, which could signal the opportunity for responsible year-end profit-taking. Susan Abbott Gidel, author of Trading In Sync With Commodities—Introducing Astrology To Your Financial Toolbox, also edits Red Letter Trading Days, a monthly newsletter.
december 2019 | luckbox
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(We’ll put up $5,000 to see.)
ENTER NOW AT tastyworks.com/challenge Full terms and conditions at tastyworks.com/challenge. tastyworks, Inc. (“tastyworks�) is a registered broker-dealer and member of FINRA, NFA, and SIPC. Trading Challenge accounts are not actual brokerage accounts. Trading Challenge trades are conducted in a simulated environment. tastyworks does not guarantee against losses for real trades placed in an actual tastyworks brokerage account. Allowable products and strategies available to Trading Challenge participants may not be suitable for all investors. Please consider your own risk profile and trading needs before trading in a real brokerage account. tastyworks does not make trade re recommendations, and the ability to trade certain products during the Trading Challenge does not constitute a recommendation or endorsement of any kind. Must be 18 years or older to participate.
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trades actionable trading ideas
CHERRY PICKS
R I PE A N D J U I CY TRADE IDEAS
Sector Ignorance By Michael Rechenthin, Ph.D.
ost investors own one or more of the Dow Jones, S&P 500, Nasdaq or Russell 2000 indexes. Common ways to buy into them are through exchangetraded funds, such as Dow Jones (DIA), S&P 500 (SPY), Nasdaq (QQQ) and the Russell 2000 (IWM). But drill into those indexes and it becomes apparent that the sectors within each index differ. The Nasdaq is 39% tech stocks. The Russell is full of banks and healthcare. The Dow and S&P 500 are similar with regard to sector makeup. Participating in those few ETFs could also mean not owning an asset that is on its lows—energy— and another that provides above average stability and high relative dividends—utilities. To participate in those sectors, investors could choose from among the following ETFs. The returns are strong for utilities (XLU), but they’re weak for the two energy ETFs (XLE and XOP). For more exposure in these sectors, consider the bullish trade ideas, right.”
M
Sign up for free cherry picks and market insights at info.tastytrade.com/cherry-picks
Where some ETFs invest These exchange-traded funds are spread across sectors. The percentages show where they’re invested. SECTOR WEIGHTINGS (%) Dow Jones
S&P 500
Basic Materials
3%
4%
Communication Services
3%
2%
3%
1%
Consumer Cyclical
13%
15%
18%
12%
Consumer Defensive
13%
8%
8%
3%
Energy
7%
5%
Financial Services
18%
14%
Healthcare
13%
Industrials
13% 17%
Real Estate Technology
Nasdaq
Russell 2000 5%
4% 2%
20%
12%
17%
20%
15%
12%
13%
13%
39%
14%
6%
1%
2%
6%
Utilities
6%
Grasping opportunities These energy and utilities exchange-traded funds enable investors to benefit from highs, lows and stability. 1-Year Returns
Symbol
Name
3-Largest Stocks
XLU
Utilities Select Sector SPDR ETF
NextEra Energy, Duke Energy, Dominion Energy
XLE
Energy Select Sector SPDR ETF
Exxon Movile, Chevron, Phillips 66
-22%
XOP
SPDR S&P 500 Oil & Gas Exploration ETF
PBF Energy, Marathon Petroleum, Phillips 66
-50%
22%
TRADE IDEA #1
Buy 100 shares of XLU. Sell the first out-of-themoney call. Owning the ETF enables one to receive the dividend (currently around 3%) while also receiving credit for the call. Each month, buy back the call and sell another.
TRADE IDEA #2
Sell one put in XLE and one in XOP using the first out-of-the-money strikes. That’s a bullish strategy that requires less money than owning the ETF outright in a margin account. An additional advantage is that the credit received from selling the put means the ETF can also go considerably lower before a loss occurs.
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trades
THE TECHNICIAN
A V E T E RA N T RA D ER TAC K LES T EC HNICALS
Side Hustle Stocks By Tim Knight
oogling “gig economy companies” or “side hustles” yields a multitude of entries on individuals and organizations. They’re workers and companies offering goods and services that don’t require large amounts of capital. Whether it’s driving a car, creating a handicraft, drafting a promotional piece or writing a piece of code, side hustles abound in the gig economy. But not many of those entities have gone public. In the gig economy, it takes an unusual market opportunity to grow large enough to justify a public offering. Yet seven companies have proven themselves exceptions.
G
Taxi! Mention “the gig economy,” and ride-sharing services immediately come to mind. Investors eagerly awaited the IPO of the largest, Uber (UBER). The stock did well for a few weeks after the company went public, but after peaking at around $47 per share, it began grinding lower until it reached the upper $20s. As of this writing, the stock is still down about 30% from its peak, and prospects for recovery don’t look good. There’s substantial overhead supply from $40 on up, and reaching even that level doesn’t seem likely, in spite of Uber’s major presence. (See “Uber’s fall,” above, right). The somewhat smaller giant in the ride-sharing sector, Lyft (LYFT), went public a couple of months before Uber. Although it fell sharply from its offering, it was starting to form a clean saucer base (illustrated by the horizontal line in the graph in “Non-flying saucer,” right). Regrettably for the company, the base never formed completely, and the price crumbled to
Uber’s fall Uber’s stock did well for a few weeks after the company went public but has struggled ever since.
Non-flying saucer Shares in Lyft fell sharply from its offering. From there, the value of the stock crumbled to less than half its peak.
Investors eagerly awaited the Uber IPO, but after peaking at around $47 per share, the stock began grinding lower—much lower. 50
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trades
less than half its peak value. As with Uber, Lyft began with fanfare and excitement, yet both companies badly disappointed shareholders. A little help? Because the companies created to replace taxicab companies don’t appear to be doing that well, let’s refocus attention on firms that marry skilled workers, especially those with technical expertise, to people or companies in need of those talents. The first, Upwork (UPWK), provides another example of a relatively young company whose present price level is only about half of its peak. The stock meandered in the lower $20s and upper teens, but the important technical event in the chart shown in “A familiar downward story,” right, was the shooting star pattern that took place Aug. 8, just after Upwork’s earnings announcement. This single bar appears above the horizontal line, and while the shooting star is intrinsically bearish, the fact that an island reversal pattern took place at the same time made it decidedly so. Give me five Israel-based Fiverr (FVRR) offers a platform similar to Upwork, concentrating on digital services by professionals. The day of its offering dawned explosively, but the stock peaked literally on its second day as a public entity. Since then, it has done even worse than the firms mentioned above, losing a full 60% of its value. Then it appeared Fiverr had bottomed and was starting to recover. That might seem encouraging, take note of the volume, which is shown in the lower portion of the chart in “Leaving stockholders hanging,” right. Volume has withered to a tiny fraction of its original levels, so it appears doubtful there’s enough enthusiasm behind the recovery to sustain it. Ups and downs While it may seem all of these stocks have performed poorly, one notable exception is Care.com (CRCM). However, what had been a marvelous recovery there has soured as well. After a successful IPO, Care.com proceeded to lose about 80% of its value. But starting in 2016, the company began to recover, and it eventually rose almost to its peak price. Sadly for the shareholders, however, this was yet another “gig” company that gagged. Although the stock isn’t near its lifetime lows, it has still had a dreadful run, as shown in “Down, down, down,” right. It seems doubtful stock buyers will be revisiting the stock anytime soon, given its two vicious pushes to the downside.
A familiar downward story Upwork provides another example of a relatively young company whose present price level is only about half its peak.
Leaving stockholders hanging Fiverr’s stock peaked literally on its second day as a public entity, losing a full 60% of its value since.
Down, down, down Sadly for shareholders, Care.com was yet another gig company that gagged.
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Two standouts As grim as these examples may seem, a couple of charts can pique the interest of traders. “The exception,” right, depicts the fortunes of Etsy (ETSY), an e-commerce site that offers crafts, craft supplies and vintage merchandise. Between August 2015 and August 2017, the company’s stock formed a clean, bullish base. After completing the base at about $15, it went on to produce a nearly 400% return for shareholders, one of the best of any public company during that period. Since then, the stock has given up some of its gains, but by no means is it as bearish or damaged as some of the others described here. Among all the stocks mentioned, Etsy has been the only one to show true strength and a persistent uptrend. Rainy days Lastly comes Amsterdam-based Yandex (YNDX), an umbrella company for a wide variety of services, including food delivery, ride-sharing, meal kits and literally dozens of other offerings. The company had a clean topping pattern (shown tinted in pink on the chart in “Positive pattern,” right) which preceeded an approximately 75% drop in value. The stock spent two years recovering and pushing higher, until early 2018 when it had almost fully recovered its peak price. It then began to stall, and most recently it formed a medium-sized topping pattern. Price support for Yandex appears to be at about $25 per share. Down upshot None of these stocks has done well for investors. Indeed, some have been terrible. But sometimes a business makes the world a better place—the way ride-sharing companies make it easier to get around town, or an online marketplace offers opportunities to make extra money. Thousands of jobs have come into being at companies that started as side hustles. But the fact that a company achieves popularity doesn’t mean it’s going to make investors money. Companies such as Uber, Lyft, Upwork, Etsy, Care.com, Yandex and Fiverr may have many years of life left in them, but thus far it seems the biggest winners are those who participate in these services—not the investors who sink cash into them. Tim Knight has been using technical analysis to trade the markets for 30 years. He hosts Trading the Close daily on the tastytrade network and offers free access to his charting platform at slopecharts.com.
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The exception Etsy produced a nearly 400% return for shareholders, one of the best of any public company during the same period.
Positive pattern Although the price of Yandex stock toppled, it has almost completely recovered.
None of these [side hustle] stocks has done well for investors ... some have been terrible
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MACRO VIEW
O PPO RT U N I T I ES I N G LO BAL M AR K ET DIR ECT IO NAL T R ENDS
Take a look at the Krona By Amelia Bourdeau
he U.S. dollar (USD), the world’s most fallen 5.2% versus the U.S. dollar and 2.9% tor risk-seeking appetite, therefore negatively traded currency, is followed in trading versus the euro. The krona has fallen nearly impacting the high beta Scandi currencies. In volume respectively by the euro 7% versus the U.S. dollar and 4.7% versus addition, the Swedish economy has been slow(EUR) and the Japanese yen (JPY), according the euro. As stated above, when the Scandies ing, negatively affecting the krona. to the The Bank of International Settlements move, they tend to move a lot. But why are the (BIS) Triennial Central Bank Survey on Scandi currencies the worst performers versus TRADE IDEA The Scandi currencies are very Foreign Exchange Turnover (April 2019). The the U.S. dollar and euro when the S&P 500 thinly traded, but they can present select profit world recognizes those three currencies as the Index (SPX) is up 20.4% year-to-date? opportunities. Ahead, the krona should remain powerhouses of developed market, or G10, According to that one metric, risk-seeking weak as the Swedish economy plods through currency trading. But what about the other appetite among investors seems to be posi- a slowdown and inflation remains subdued. G10 currencies? tive or “risk-on,” meaning Scandi currencies Riksbank, the central bank of Sweden, has Consider two of the lower-profile G10 should also be strong. However, looking at just forecasted a policy rate hike will occur within currencies—the Norwegian krone (NOK) and the overall rise in the S&P 500 Index this year a month, but analysts disagree. In addition, Swedish krona (SEK). Those currencies are hides the fact that notable risk-off periods have some analysts think Riksbank could cut its policy rate early next year. That Riksbank cheekily known on trading floors by their nick- occurred throughout the year. names “Nokkie” and “Stokkie.” They’re also Last month’s Macro column, 5 Tips for monetary policy uncertainty should weigh on referred to collectively as the “Scandi” curren- Choppy Markets, was devoted to that flip-flop the krona versus the euro. Buy six-month 11.10 cies. The krona ranks as the 11th most-traded or risk-on/risk-off phenomenon. Continued EURSEK call. currency in the world, and the krone is 14th, market uncertainty about the big, unresolved Amelia Bourdeau is CEO of marketcompassllc.com, according to the BIS. macro themes—the U.S.-China trade war, an advisory firm that provides global macro Traders keep the Scandi currencies on their Brexit and the slowing U.S. and European education and trading strategy to investors of all radar screens because when krone and krona economies—have weighed on overall inves- levels. @ameliabourdeau move, they tend to move quickly and by sizeable amounts, sometimes even intra-day. While not the top three powerhouse currencies traders trade day-in and day-out, the Scandi EURSEK versus VIX Index currencies are the side hustlers. A rising VIX—a measure of volatility/risk-off sentiment—tends to weaken the krona versus the euro. Traders can capture solid, short-term gains on occasion with them if they monitor them and pay attention to upcoming relevant event risk. Why? Traders consider the Scandi currencies “high beta,” meaning they can be sensitive to the overall risk-seeking sentiment in markets. For instance, risk-on days in equity markets can see the Scandi currencies strengthen and risk-off days can mean they weaken. In addition, Norway exports oil, making the krone an “oil” currency that’s sensitive to price changes in petroleum. So far this year, Scandi currencies have been the worst performing G10 currencies against both the U.S. Source: Bloomberg LLP dollar and the euro. The krone has
T
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DO DILIGENCE
QU I E T FOU N DAT I O N HELPS P ROACT IV E INV ESTO RS U NDERSTAND T HEI R PORTFOLI OS
CSI: Investigating Thrift Savings Plans By James Blakeway
t’s 1987. Ronald Reagan is serving his second term as president, Paul Simon’s Graceland wins the Grammy for album of the year and the U.S. stock market witnesses Black Monday, the worst day in U.S. market history. While most of the financial industry remembers 1987 because of Black Monday, the year also saw the creation of the Thrift Savings Plan (TSP), the government’s version of a 401(k). At the end of 2018, 5.5 million current and former public sector
I
employees had TSP accounts totaling $559 billion in assets. The 401(k) plans, which vary dramatically depending upon the employer as well as the plan provider, tend to offer a plethora of mutual funds to account holders. TSPs, on the other hand, are straightforward when it comes to fund choices. While this could come across as limited choice, the funds provide broad and varied access to the debt and equity markets. TSP participants have three core choices for stock-based funds:
the C, S, and I funds. All three are invested to track stock indexes. The C Fund seeks to track the S&P 500 Index, 500 of the largest U.S. public companies. The S Fund’s objective is to track the Dow Jones U.S. Completion Total Stock Market Index, a broader stock market index of 4,500 companies. Lastly, the I Fund is invested to provide TSP participants exposure to the MSCI EAFA (Europe, Australasia, Far East) Index. The I Fund’s goal is to provide a global, non-U.S. equity choice.
Evaluate any portfolio with Quiet Foundation
Spot the average This table lists the average correlation of each ETF to its corresponding TSP fund, as well as the beta values. Data as of Oct. 28, 2019
ETF Name
TSP Price ETF Price
Beta of ETF to TSP Fund
Shares of ETF per 100 Shares of TSP Fund (Unadjusted)
Shares of ETF per 100 Shares of TSP Fund (Adjusted for Beta)
AGG
iShares Core U.S. Aggregate Bond ETF
19.58
112.38
0.878
17.43
19.86
S&P 500 Index
SPY
SPDR S&P 500 ETF Trust
44.29
303.3
1.002
14.6
14.58
S Fund
Dow Jones U.S. Completion Total Stock Market Index
IWV
iShares Russell 3000 Index ETF
53.02
177.7
0.863
29.84
34.56
I Fund
MSCI EAFE (Europe, EFA Australasia, Far East) Index
iShares MSCI EAFE ETF
31.17
67.32
0.991
46.31
46.74
TSP Fund
TSP Tracks
F Fund
Bloomberg Barclays U.S. Aggregate Bond Index
C Fund
ETF Ticker
Past performance is no guarantee of future results. Information provided in an EPI Report does not consider the specific profile, objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her investment professional. Investment suitability must be independently determined for each individual investor. QF does not make suitability determinations or investment recommendations for investors. EPI utilizes the S&P 500 as its benchmark given that the S&P 500 is considered a barometer of stock performance in the United States. Aspects of the analysis and information found in an EPI Report are based upon simulated and/or hypothetical performance. Simulated and hypothetical performance have inherent limitations and do not represent the actual performance results of any particular investment products. The EPI Report does not guarantee any results or outcomes in the financial markets. Investors should be aware of the methodology used to produce an EPI Report and the inherent limitations when placing reliance on the results. For additional information about EPI Reports, visit the QF website: quietfoundation.com. TSP fund data from tsp.gov.
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For fixed-income assets, TSP participants have access to the G Fund and the F Fund. The G Fund holds a basket of U.S. treasury securities issued directly to the fund. The fund goal is to earn a return consistently higher than inflation with the promise of no principal risk. Managers of the F Fund, a more aggressive debt investment, purchase assets in an attempt to track the Bloomberg Barclays U.S. Aggregate Bond Index. That gives TSP investors more aggressive exposure with a diversified portfolio of investment-grade notes and bonds. Besides the individual funds, the TSP administration offers a selection of Lifecycle Funds. The L Funds operate much like target date retirement mutual funds. The available funds are for those retiring around 2020, 2030, 2040 and 2050. These L Funds are comprised solely of the five TSP debt and equity funds. They shift allocations from the C, S, and I Funds to the F and G Funds as the intended TSP participants approach retirement. As an example, the L 2050 Fund is currently allocated as 10.5% G Fund, 7.7% F Fund, 40% C Fund, 13.1% S Fund and 28.6% I Fund. Ultimately, only 18.2% is allocated in debt instruments. However, with 90-day treasury interest rates at 1.66%, and 30-year treasury rates at 2.24%, these funds may remain stagnant in the near term. Younger TSP participants may want to take matters into their own hands and shift more capital into the equity funds, given the longer time horizon of their investments. TSP investors are given broad access to financial markets through these low-cost funds, but what about participants who invest outside of their TSP plan? Similar to 401(k) plans, TSP plans likely
C
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S
make up a large portion of these individuals’ retirement assets. As always, it’s important for investors to know their exposure across all accounts and retirement plans. TSP participants should keep their TSP fund allocations at the forefront of their minds when making external investment decisions, whether they’re investing in an IRA, Roth IRA or brokerage account. One way of understanding risk and exposure is to compare the TSP funds to exchange-traded funds (ETFs). Unfortunately, the G Fund does not have an ETF equivalent because it receives custom-issued treasuries. That’s less of a concern given the guarantee that G Fund investors will not lose their principal investment. The other four funds can be matched to exchange-traded counterparts. While the S Fund tracks the Dow Jones U.S. Completion Total Stock Market Index, no ETFs track that exact index. However, the iShares Russell 3000 index ETF (IWV) tracks a similar broad basket of stocks. The table in “Spot the average,” p. 56, lists the average correlations of each ETF to its corresponding TSP fund as well as the beta values. With all four correlation values around or above 0.9, there’s a high confidence that these ETFs are tracking the day-to-day direction of the TSP funds. The beta values take it a step further, looking at the magnitude of the movement of each ETF relative to the movement of the TSP fund. A beta of 1.0 indicates equivalent movement of the ETF to the respective TSP fund, and above 1.0 means higher-magnitude moves, while less than 1.0 indicates lower-magnitude moves. So why go to the trouble of calculating correlations and betas? Because it enables TSP investors to compare their TSP funds to prod-
Younger TSP participants may want to take matters into their own hands and shift more capital into the equity funds, given the longer time horizon of their investments.
ucts familiar to the rest of the financial industry. Dividing the TSP fund price by the ETF price gives the equivalent number of ETF shares per share of TSP fund. Dividing that value by the beta adjusts for the discrepancies in how much the products move day to day. Armed with that information, TSP participants can analyze their fund holdings through Quiet Foundation’s free Exploratory Portfolio Analysis system. TSP funds are not listed securities and are therefore not generally supported by most financial analysis software, but the ETF equivalents can be analyzed. Quiet Foundation’s analysis system indicates that the IWV and EFA ETFs currently exhibit correlations to the S&P 500 Index of 0.99 and 0.89, respectively. That means there are extremely high correlations between the C, S, and I Funds. Knowing that, TSP participants can choose more diverse, less-correlated investments outside of their TSP accounts. All three of the TSP equity funds are concentrated in United States stocks and developed economy stocks, but do not include developing or emerging market stocks. Younger investors may look to add some more diverse global exposure, potentially using ETFs such as EEM, the iShares emerging market ETF. Just like 401(k) contributors, TSP participants should be cognizant of the inner workings of their portfolios and where their exposure liesFrom there, they can make more informed decisions regarding any external investment. As always, for all investors, it comes down to due diligence.
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James Blakeway serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis services for self-directed investors.
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tactics essential trading strategies
BASIC
News-Driven Trading
Basing trades on public announcements and earnings reports can generate profits without a major investment of time
By Michael Gough
PHOTOGRAPH: REUTERS/BRENDAN MCDERMID
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nvestors always have something to trade, thanks to a six-and-a-halfhour equity trading day, extended hours for futures and weekend crypto markets. But not everybody has time to trade. It’s impossible to stay glued to the screen because other areas of life demand attention, and staying awake through the night hardly seems feasible. So, given a limited schedule, is there a more effective way to trade? For busy investors, news-based trading provides a way to stay engaged with the markets. It’s exactly what it sounds like—buying and selling around a particular public event. Each month, dozens of market-moving announcements, such as Non-Farm Payroll reports, World Agricultural Supply and Demand Estimates, and Federal Reserve policy meetings, are released to the public. All of them present scalping opportunity. Besides those announcements, the hundreds of earnings reports released quarterly provide a nearly endless stream of short-term trading opportunities. Consider earnings announcements. Each quarter, before a company releases its financial information, dozens of analysts make an educated guess on how the company
performed. The difference between what they expect and what actually occurs can shake the stock price or not move it at all. It’s these guesses and expectations of movement that provide a great short-term opportunity for the savvy options trader. Using options markets, traders can gauge how much market participants are expecting the underlying to move after the earnings release. This number is reflected in the implied
volatility of the options expiring closest to the earnings date. Selling options around those price levels can be a profitable one-day trade if the stock moves less than expected. Consider the example of a recent Apple (AAPL) earnings report. An earnings calendar shows Apple was releasing earnings on Wednesday, Oct. 30, after the market close. Using the implied volatility of the options expiring closest to the earn-
Pro traders anticipate events that may result in market-shifting news.
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ings release, Friday, Nov. 1, the market was expecting a move of +/$12. With Apple trading around $243 on Oct. 30, the market was expecting it to stay within $255 and $231 before the options expired on Nov. 1. Using those ranges as a guide, a trader could sell premium around these prices to bet on an inside move. An iron condor provides an ideal strategy for earnings plays because of its defined risk, lack of directional bias and low capital requirement. Given the expected move of +/- $12, a trader could sell the 225/220 and 260/265 iron condor for $0.76 at the close on Wednesday. The short options were placed beyond the expected move just in case Apple moved more than +/- $12. After the market closed, Apple released its financial performance and the next day opened higher at $247.24, a move of $4 relative to the expected +/- $12. With the price of Apple well within the iron condor’s short
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options, the trader could have bought back the spread for $0.03, a nice profit of $0.73 in less than 24 hours. Traders can apply that strategy to countless earnings announcements if the underlying has heightened implied volatility and a liquid options market. Consider the recent release of Goldman Sachs (GS) earnings. Goldman Sachs released its earnings on Oct. 15 before the market open with the market expecting a +/- $7.50 move. Given Goldman Sachs’ closing price of $205.82, the 195/190 and 215/220 could have been sold beyond the expected move for $0.74 on Oct. 14. The next day, after the earnings release, traders could have bought back the iron condor for $0.13 because Goldman Sachs moved less than the market expected, a $0.61 profit in less than one day. The key to these short-term earnings trades is finding underlyings with overpriced options. As the earn-
ings date approaches, uncertainty increases, which pumps up the price of options. After the release, there’s no longer uncertainty because the earnings become public, and the option prices deflate like a balloon. This balloon release can be seen in the reduction in implied volatility; Apple’s implied volatility decreased from 76 to 28 while Goldman Sachs’ implied volatility decreased from 41 to 28. In the search for short-term trading opportunities, consider earnings announcements and other public events with defined risk strategies. Earnings releases can provide consistent trading opportunity because the trades are short-term, the profit potential is high and the date of announcement is known ahead of time, removing the need to incessantly check price quotes.
An iron condor provides an ideal strategy for earnings plays because of its defined risk, lack of directional bias and low capital requirement.
Michael Gough works in business and product development at the Small Exchange, building index-based futures and professional partnerships.@small_exchange
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tactics
INTERMEDIATE
(Covered) Call to Action Savvy investors can turn a 401(k) or IRA into a facsimile of a covered call By Anton Kulikov
A
mericans store a big chunk of their investments in 401(k) plans or IRAs for two reasons. First, employer matching funds can add up. Second, participants can’t easily withdraw cash to buy an iPhone or a take a tour of Europe. As a result, retirement accounts can build a lot of value over time. But the sponsors of most plans limit participants’ choices to nothing more than passive mutual or index funds. It’s time to change that. Using the right fund in a 401(k), combined with another simple strategy, can boost returns in normal market conditions and cushion against downturns if the market drops. Let’s see how. In a normal trading (margin) account, investors can use options to hedge/amplify returns on long stocks—exchange-traded funds (ETFs), for example. But they can’t do that in a 401(k)… or can they? In today’s world of advancing financial technology that’s geared for individual investors, some brokerages allow customers to have a 401(k) or other retirement account and sell calls in them without owning stock. That means that investors can take advantage of the same strategies that a normal trading account would, but with a little more work. By having a 401(k) invested in an S&P 500 Index fund (which most plan providers have in one form or another), participants can open an IRA account at another broker that allows selling naked S&P 500 calls. Then all they have to do is contribute or transfer enough money to the IRA to meet the buying power requirements the broker mandates for sell-
ing naked calls. The result is that they have two retirement accounts—one where their S&P 500 fund resides (the 401(k)) and the other where the short S&P 500 calls reside (the IRA). The net performance and tax implications will be exactly the same as if they were selling covered calls against their long S&P 500 fund in the 401(k). Now, one question remains: How does an investor know how many calls to sell in the correct proportion to the fund in the 401(k)? Simply take the dollar amount invested in the S&P 500 mutual fund in the 401(k) (the brand doesn’t matter, they all have the same exposure to the index), divide by the price of SPY (the ETF that tracks the S&P 500 and has very liquid options) and then divide again by 100. For example: If an investor places $300,000 in an S&P 500 fund in a 401(k), then divide $300,000 by $300 (the price of one share of SPY), and then divide by 100. The answer in this case is 30 SPY calls. So, selling 30 SPY calls would create an S&P 500 fund covered call between the positions in the 401(k) and IRA account.
Now there's one more caveat. Because the mutual fund and the calls are held in different accounts, and investors technically can’t close the fund position in the 401(k) without tax consequences, they have to make sure the calls in the IRA are rolled near the end of each expiration cycle or that they are in the money. That way, they avoid any assignment risk in the IRA that would require depositing more money in the IRA, which might not be possible. The benefit is that investors get the full performance of a covered call strategy when they add the two accounts’ P/Ls together. A drawback is that selling calls in an IRA is capital intensive, meaning the amount of money required in the IRA is much larger than if one were conducting this strategy in a regular trading account. However, investors who have the capital and a willingness to monitor positions at least once a week can enjoy the benefits of a covered call, plus the tax benefits of a 401(k)/IRA. Anton Kulikov is a trader, data scientist and research analyst at tastytrade. @antonkulikov
Some brokerages allow customers to sell calls in a retirement account without owning stock. See Che She at e p. 6 t 3
Watch to learn about covered calls
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tactics
ADVANCED
Zeroing Out Those Utility Bills With this hack, investors can make utility companies pay the family gas and electric tabs By Michael Rechenthin, Ph.D.
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raders consider utility stocks relatively safe investments—partly because regulation limits competition. Besides, the massive infrastructure required to produce gas or electricity is so expensive that it serves as another nearly insurmountable barrier to entry. What’s more, revenues tend to remain consistent for utilities because consumers generally use about the same amount of power every year. With a stable income stream, utilities often pay higher-than-average dividends. Take a look at the dividend yield of the utilities in The best bet (right). An investor could use them to offset household gas and electric bills. But how many shares would it take to cancel out a hypothetical $100 utility expense? Well, consider the utility Dominion Energy (D). The quarterly dividend is $0.91 and, unsurprisingly, investors expect to receive it four times a year. To cover a $100 utility bill, an investor would need the dividends from 330 shares. Multiplying 330 shares by the share price of $81.33 means an investor would have to own nearly $27,000 worth of stock. But options provide more opportunity while requiring less cash. Here’s how: Instead of purchasing 330 shares, one could buy 200 shares and sell 85 calls against the stock held. That offers the advantage of still receiving the $0.91 per share quarterly dividend while also making money from the sale of the call. Assume an investor would receive $0.50 per share by selling the November call, which is 51 days from expiration, while still receiving $0.91 for the dividend for each of the 200 shares held. Instead of needing $27,000, the investor could use options and use one-third less and receive 20% more ($120 versus $100 per month). Michael Rechenthin, Ph.D., (aka “Dr. Data”) heads research and data science at tastytrade.
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The best bet Regulation limits competition for utilities, making their stock a comparitively safe investment. Utilities also collect revenue consistlenty and thus pay healthy dividends. Name
Quarterly Dividend (Yield)
Price of Stock
Dominion Energy (D)
0.91 (4.5%)
$ 81.33
Duke Energy (DUK)
0.94 (4.0%)
$ 94.10
Consolidated Edison (ED)
0.74 (3.3%)
$ 30.89
Exelon (EXC)
0.36 (3.2%)
$ 45.60
Utilities Select Sector ETF (XLU)
0.49 (3.1%)
$ 63.28
Negating utility bills Unknown shares required
=
Monthly Utility Expense x 12
=
Quarterly dividend received x 4
100 x 12
1200
0.91 x 4
3.64
=
330
Squeezing out more money with covered calls Monthly estimated cash flow for call
=
# of shares x credit from call x 12
Monthly = estimated cash flow from dividend
# of shares x quarterly dividend received x 4 12
Monthly total cash flow = Monthly estimated cash flow for call
365 Days until expiration
=
Monthly = estimated cash flow from dividend
Estimated cash flow from call + estimated cash flow from dividend
200 x $0.50 x
365 51
=
60
=
61
12 200 x 0.91 x 4 12
Monthly total cash flow = 60 + 61 = $121
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tactics
A Covered Call for Any Bias Maximize profits and reduce risk with covered calls. Your choice of strategy depends upon your directional bias.
Profit/Loss
CHEAT SHEET
By Michael Rechenthin, PhD Options can be visualized with risk graphics—in fact, all trading platforms have them. The chart here shows the payoffs associated with holding 100 shares of stock at a price of 100 and selling the 95 call (neutral to slightly bearish bias), the 100 call (neutral to rangebound bias), or 105 call (slightly bullish bias).
Stock Price
Neutral to slightly bearish bias Slightly bearish on the stock? Consider closing the 100 shares, or selling short. Or sell a covered call slightly in-the-money against the shares held. That will lower the breakeven considerably and protect against a decline of up 10% in the value of the stock.
Neutral to range-bound bias With a neutral to range-bound belief in the stock, Sell closer to an at-themoney call. That will yield the greatest value for the covered call and protect against a 3% to 10% decline in the stock price.
Slightly bullish bias Slightly bullish on the stock? Make more money on the upside move. Place the call farther out of the money. For example, sell 1-5 points above the market. The profit on the call (covered) will still offset up to a few percent of a downward move.
Very bullish bias More bullish? Then place the strike farther out-of-themoney. But that will deliver less premium and less protection if the stock declines. The farther out-ofthe-money the call, the lower the probability of success, but there’s more profit potential if the stock rises dramatically.
december 2019 | luckbox
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luckbox of the month
DONUTS TO DOLLARS
J
ason Gonzalez doesn’t fit the generally accepted definition of a luckbox. Instead of passively waiting for good fortune to find him, he goes out and makes his own luck. The 21-year-old Metropolitan State University student works the side hustle of reselling legendary Krispy Kreme donuts in parts of the Midwest where the sugary delicacy’s unavailable. Scarcity raises the price of any commodity, and Gonzalez finds he can mark up a coveted dozen Krispy Kremes by $8 over retail. Weekends, he fires up his 2008 Ford Focus and cruises roughly 270 miles from his home in Champlin, Minn., to the nearest Krispy Kreme in Clive, Iowa. After stuffing the compact sedan with 110 boxes of donuts, he heads back, making stops along the way to resell his wares. But a problem arose. Krispy Kreme’s top management heard about the side hustle and took action to quash it. Bad move. When news of the cold corporate response went viral, public sentiment began to turn against the makers of the prized donuts. To make amends, Krispy Kreme reversed course, conferring the company’s blessing upon Gonzalez and donating 500 boxes of donuts to him. The donut dealer’s windfall has a street value of approximately $10,000—enough to make a serious dent in the budding businessman’s college debt. But, Gonzalez didn’t stop there. Instead, he capitalized on his newfound notoriety and launched a GoFundMe campaign to raise cash to buy a bigger vehicle—one that could haul up to 300 boxes of donuts. Thus far, he’s raised $8,000 of his $10,000 goal. “I know a lot more people in Minnesota are going to want in on the weekly runs,” he wrote on the GoFundMe page. So, how does all this make Gonzalez the magazine’s Luckbox of the Month? It’s true that he’s not a classic clueless and undeserving luckbox, but we just couldn’t pass up the chance to tell his story.
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Back-of-thenapkin analysis of the donut hustle
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luckbox | december 2019
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F E W H A S T H E S P I C E . H A N D - M A D E I N S M A L L B ATC H E S, U S I N G A M A S H-B I L L INSPIRED BY WHISKEY ’S PRE-PROHIBITION GOLDEN ERA. F E W COMBINES A HIGH RYE CONTENT & PEPPERY YE A ST TO MAKE A UNIQUELY SPIC Y BOURBON.
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