Monday, December 26, 2011


With 2011 ending with a positive reversal in the markets and the global/domestic economic outlooks - funny how that happens around Xmas!- I want to wish all the readers and DITM supporters a prosperous 2012.
My Holiday Gift is a trade I tried to put on Friday, but the MM (market maker) was OTL (out to lunch); so I shall reput it on Tuesday, as it goes ex-Dividend Wednesday. So it must be done before then:
Buy shares of DOW, a Schwab "B" rated stock, 4* by S&P, 3.67% dividend; sell the June 26 calls at the marks (they didn't want to split the bid-ask for a Theoretical price). Annualized return should be in the mid-teen range, with a safety net of technical support.
I also wanted to mention a couple very helpful links to aid in DITM trading: has more great ideas than you have money!
The other was mentioned in Steve Sears' Striking Price option column in Barron's this weekend, which closely fits with the DITM strategy - he has allowed me to excerpt it for here and the nonprofit SF Option Group site. The site is CBOE's OIC, which should be extremely useful for any type of option activity - heavens know we could use help these days!
Here is the excerpt from Sears:
"By mid-December, most banks, large and small, release New Year investment outlooks. They hold media lunches. They get a lot of press. Never mind that many predictions prove wrong, or that most sell-side strategists are always bullish about something, and most stockbrokers are always optimistic. And let's never discuss the reality that the performance of most investors' portfolios always trails that of the benchmark indexes.

YET, INVESTORS RARELY TIRE of the old-wine-in-new-bottles routine. This isn't because they are stupid. Each year's set of predictions about which sector is poised to advance appeals to them, because most are trapped and need to make money to retire or send their kids to college or pay for other big-ticket items.

Focus on dividends, and yield-enhancing options strategies. Rather than trying to make the next big score, look at stocks that pay healthy dividends. Dividends, after all, account for about 45% of historical equity-investing gains.
At the same time, resolve to master yield-enhancement options strategies. Visit, a Website funded by the options industry. Study the covered-call strategy that studies have shown to outperform buy-and-hold investing. By selling calls against stocks that they own, or are interested in buying, investors can potentially increase their returns.

SOME COVERED-CALL SALES can generate more money than the actual dividends on the underlying stocks. If the stock isn't called away, the money received for selling the call increases your investment returns.

If the stock is called away, sell a put and try to buy back the shares at a lower price. If you can't repurchase the stock, keep selling puts to generate more conditional dividends. Again, the money received from selling these could exceed the stock's dividend yield. If you do buy the stock because it slid below the put's strike price, the premium will have lowered the purchase price and increased the shares' dividend yield.
Such strategies aren't exotic; some critics might even call them stodgy. So be it."

Tuesday, December 20, 2011


Finally, a silver lining. Today's 250+ point rally hopefully marks the beginning of a nice multi-week rise in the markets after recent gloomy news from home and abroad. My oersonal scenario for 2012 (despite the Mayan calendar forecast of Armageddon) is a Bar Bell market with rises in the 1st and last Q, and choppy volatility into the election. This is based on 4-year and decennial cycle norms.
Fully invested now, I plan to lighten up somewhat into the summer, and re-institute after any major downturns - resulting in lower prices, higher dividend %, and larger IVs in the Calls. Only five of my 22 positions are currently under water - stabilizing no more than $4 under the sold Calls- and receiving higher % dividends and milking Call premiums, I hope to resell Calls "above" expiring levels at expiry.
One that got away today is PM, which went ex-D today, being called away.
Factoring in the sold Put in late July (5 months ago), 200 PM was put to me at 70 in Sept. - net of Puts, Calls and 1 dividend, I received $804 (net of all commissions), divided by a cost of $14009 resulted in 5.74%, or an annualized (if done over 12 months) of 13.77%.
Here is a great link for finding DITM stocks:
Happy Holidays to All!

Saturday, December 3, 2011


The article below is the most recent iteration of my talks around the bay area on DITM, which increasingly appears to be the most optimal of strategies in this volatile, yet lateral market - for now and the immediate future.
I have sent it out to various places in hopes of finding a mutually beneficial situation to domicile my managing funds, while allowing experts to handle the regulatory and legal back office part.
I hope you find it interesting- any suggestions would be greatly appreciated.

By Brent L. Leonard, CMT
* Fully invested, in December 2011 my portfolio received 20 dividend payments, or 1 for each trading day of the month!
* When I buy a $50 stock, and "pre-sell" it 5-6 months later with a $6 call (the 45-strike), instead of an 8% dividend, with my cost basis at $45, the dividend rises to 8.8%. The $1 dividend each quarter is deducted from the part of the stock that I already sold; otherwise the stock would be $46 after a year, excluding appreciation.

* With today's Volatility, I get daily peace of mind knowing any stock loss is minimal, with the safety net in place. If it does fall to $45 at the time of option expiry, I can roll the call down and out to the $40-strike with 100% of my known profit. If it happens to fall below $45, I can resell the next $45 call ABOVE the current price, a la normal covered call writing, waiting until it recovers -meanwhile receiving a higher dividend %.

* In just short of the three years I have been extensively testing DITM with almost all my retirement, all summaries show a 10-13% "annualized" return - with slippage ( waiting for settlement or an ex-dividend date, etc., a more realistic return would be 7-10% for the year.

* According to a recent J.P.Morgan 2011 quarterly report, the following shows annualized returns on other asset classes for the past 20 years:
REITs - 10.5%
OIL- 8.0%
S&P 500 - 7.7%
GOLD - 7.2%
BONDS - 6.1%
HOMES - 2.8%
All the above have no hedge or safety net, as DITM has. Only a 20% or more Bear market can severely hurt a quality DITM portfolio - since 1900, no more than 2 Bear markets per decades (no less than 1) have occurred. (S&P, U. of Chicago)

Since 1790 U.S. securities markets have performed in 18-year alternating cycles: looking backward from the sideways cycle we are currently in - 1982-2000 was the Mother of all Bull markets; before that the sideways 1966-82 (actually down, if inflation-adjusted); before that the 1949-1966 postwar Bull market, and before that the Great Depression, etc.
Contrary to Conventional Wisdom, Buy & Hold no longer works in today's casino environment of hedge funds, high frequency traders. Anyone who gets ready to save for retirement after schooling and raising a family is subject to the 18-year cycle they are born into. The stock market is exactly at the same level as it was, not only a year ago, but 10 years ago.

Thursday, December 1, 2011


I just received notice from Schwab that my TLT had been called away 16 days early. Apparently the call - 10 points OTM - did not have enough time premium to prevent it, with ex-dividend due today.
Final tally: annualized return over (less than) 3 month's holding - 6.6%, below my average, but with little risk. What to reinvest in? Probably KMB - Kimberly Clark, ex-d Dec. 7 - a day that will live.....