Here is a complex math breakdown of 2 sets of trading results in my own Schwab accounts using DITM - no losses, although a couple bad miscues on my part in 2011:
Buy/writes opened in 2010, closed in 2011 YTD:
Total invested $98,827 Return -$4,948 total months -65, divided by number of stocks 11. Unit is 5.9 months. $4948 divided by $98827 = .05%; finally, divide .05 by 5.9 months and annualize ( times 12) = 10.18% ROI
Trades opened in 2011 and closed YTD:
$122,733; Return $2,447 -total 32 months with 13 trades = 2.5 months/trade.
Despite 2 miscues - impulsively bought a stock on ex-D instead of a day or 2 before; sold a put that expired ON ex-D, not before; annualized ROI 9.6%
Not bad for a defensive strategy.
Monday, June 27, 2011
MORE VALIDATION:
It seems everyone wants to get into the act - Barron's had stories from Steve Sears, the option guy, and even Randall Forsyth about buying dividend stocks and selling defensive calls on them (though not ITM). S Lazo notes since 1930 dividends have supplied 51.5% of stock returns - 100% in the 1930s and 2000s.
Meanwhile, I have been asked to write an article about DITM for this German zine:
http://traders-mag.com/-- nice company of authors!
Also, I am preparing my Zero book for eBooks, probably through Smashwords Publishers - price will drop down by 1/3.
I hope to have a meetup with Schwab's proprietary ETF and fund group - Laudus - about possibly helping manage or consult on a fund to purely test the theory, sans GNMAs, bonds, etc. now in my family accounts.
I just put on 2 other trades today: BMY, selling the Dec. 27 calls; and PWE, which is suffering from wildfires in Canada - selling only the July 22 call (scalping for a month, a la Randy Frederick's column in Schwab's Option Letter.
I remain fully invested, unscathed by the recent 7 week downturn -only 2-3 positions slightly under water.
Meanwhile, I have been asked to write an article about DITM for this German zine:
http://traders-mag.com/-- nice company of authors!
Also, I am preparing my Zero book for eBooks, probably through Smashwords Publishers - price will drop down by 1/3.
I hope to have a meetup with Schwab's proprietary ETF and fund group - Laudus - about possibly helping manage or consult on a fund to purely test the theory, sans GNMAs, bonds, etc. now in my family accounts.
I just put on 2 other trades today: BMY, selling the Dec. 27 calls; and PWE, which is suffering from wildfires in Canada - selling only the July 22 call (scalping for a month, a la Randy Frederick's column in Schwab's Option Letter.
I remain fully invested, unscathed by the recent 7 week downturn -only 2-3 positions slightly under water.
Monday, June 20, 2011
PLAN B:
As of last week's option "exasperation", having sensed at least a temporary shelf in the market using sentiment indicators (but still employing a safety net), several puts were sold with the intent to take on desirable DITM stocks shortly after the puts either expire worthless (giving me 100% ROI, 10% ROA), or having the stock put to me at a lower price. For example, if I like a stock that goes ex-Dividend in 2 or 3 months, I sell a lower put to expire just before that date and add it to profits.
So far my DITM portfolio has not had a losing trade in over a year -since BP, and TLT declines. However, 2 or 3 of my 18 are slightly under water, collecting option premium and >3% dividends.
June Puts include: ERF put to me at 31, sold the 29 Oct.call
XLU major screwup - put to me Friday, expiry -the same day as ex (as without) div'd. I hope to trade out of it.
KKR Call expired at zero - will take dividends until it rises again, selling a Call.
July Puts include:
INTC
LLY
HCN
TAL
SCCO
August puts include DIA, so far. Other candidates, if I get some more money to invest: DEO,BMY. Caveat Emptor!
So far my DITM portfolio has not had a losing trade in over a year -since BP, and TLT declines. However, 2 or 3 of my 18 are slightly under water, collecting option premium and >3% dividends.
June Puts include: ERF put to me at 31, sold the 29 Oct.call
XLU major screwup - put to me Friday, expiry -the same day as ex (as without) div'd. I hope to trade out of it.
KKR Call expired at zero - will take dividends until it rises again, selling a Call.
July Puts include:
INTC
LLY
HCN
TAL
SCCO
August puts include DIA, so far. Other candidates, if I get some more money to invest: DEO,BMY. Caveat Emptor!
Monday, June 13, 2011
VALIDATION:
It took 5 weeks of down market action to happen, but in the same week, two of the more conservative institutions - Schwab and Nuveen - each came out with reference to the in-the-money (DITM) strategy I have been successfully testing for over two years. Schwab's top option guru, Randy Frederick, advised in an investment letter, to use almost exactly the plan I have been using, although he scalps with a 1-month call, rather than 5-6 months to get 2 dividends.
Nuveen has 3 CEFs (closed-end funds), using Index options and having to rely on premium/discounts, have underperformed the ETF plan. My main source of reference - Seeking Alpha, describes them.
Over the weekend my Merck (MRK) got called away after 6 months. The numbers are:
Bought Dec. at $3490, received 2 dividends at $76 (after rolling out calls to July) and a total return of $167. Dividing $167 by initial $3490 and doubled for 12 months, gets one to 9.57% annualized - sort of like buying two 6-month CDs with the same money.
Since this downturn is the perfect environment for DITM (cheaper stock prices, higher dividend %, more option volatility), I have been selling puts on stocks that are not quite to ex-dividend dates, with the hope of having them put to me.
A good example is McDonald's (MCD) which was exercised in May for my Sept. call - so I sold a put for the next cycle.
Nuveen has 3 CEFs (closed-end funds), using Index options and having to rely on premium/discounts, have underperformed the ETF plan. My main source of reference - Seeking Alpha, describes them.
Over the weekend my Merck (MRK) got called away after 6 months. The numbers are:
Bought Dec. at $3490, received 2 dividends at $76 (after rolling out calls to July) and a total return of $167. Dividing $167 by initial $3490 and doubled for 12 months, gets one to 9.57% annualized - sort of like buying two 6-month CDs with the same money.
Since this downturn is the perfect environment for DITM (cheaper stock prices, higher dividend %, more option volatility), I have been selling puts on stocks that are not quite to ex-dividend dates, with the hope of having them put to me.
A good example is McDonald's (MCD) which was exercised in May for my Sept. call - so I sold a put for the next cycle.
Friday, June 3, 2011
SELLING INTO THE DECLINE:
With the market down 5% in the current correction, 16 of the 18 positions in my accounts are still above water - thanks to the previous bull market. Since DITM is a defensive, fixed income-type strategy, it is getting maximum return at these levels. With even the best fundamental analysts predicting higher levels by yearend, a huge Bear market is not expected - no matter how bad the US and global economies are.
Since this is an optimal time to enter DITM - lower stock prices, higher dividend %, higher option volatility (prices) - I have entered the following positions as mentioned in the last post:
5/31/2011 DIA put 1 Aug.122 250
DIA capture best months: Aug., Nov.,Dec.(spec.)& Jan., May,
6/1/2011 INTC 3 Jul .21 $64
6/1/2011 LLY 2 Jul.37 66
6/1/2011 XLU 2 Jun.33 36
6/1/2011 HCN 1 Jul.50 30
6/3/2011 TAL 2 Jul.30 150
These are good DITM candidates which are not going ex-Dividend for awhile, so I hope to collect put premium (right hand column), but more importantly do the buy/write with a lower stock price, by having the put expire just before the next ex-D date (or just keep the money if still out-of-the-money)-then do the buy/write.
Since this is an optimal time to enter DITM - lower stock prices, higher dividend %, higher option volatility (prices) - I have entered the following positions as mentioned in the last post:
5/31/2011 DIA put 1 Aug.122 250
DIA capture best months: Aug., Nov.,Dec.(spec.)& Jan., May,
6/1/2011 INTC 3 Jul .21 $64
6/1/2011 LLY 2 Jul.37 66
6/1/2011 XLU 2 Jun.33 36
6/1/2011 HCN 1 Jul.50 30
6/3/2011 TAL 2 Jul.30 150
These are good DITM candidates which are not going ex-Dividend for awhile, so I hope to collect put premium (right hand column), but more importantly do the buy/write with a lower stock price, by having the put expire just before the next ex-D date (or just keep the money if still out-of-the-money)-then do the buy/write.
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