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."

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