SAME PAGE - EARLIER EDITION:

Excerpts from a great article in this week's Barron's Previews (I've been beating this drum via my book and talks for nearly 3 years):
One of the Fed's mandates is employment, but based on its actions since the global financial crisis, you wouldn't know that.
So say economists from the American Institute for Economic Research in Great Barrington, Mass. Their analysis shows that the central bank's efforts at monetary stimulus through quantitative easing have cost the economy as much as $587 billion of spending and as many as 4.6 million jobs.
"The effect on the depressed income of savers is something nobody talks about," says Polina Vlasenko, who co-wrote the study with Visiting Research Fellow William Ford, a former president of the Atlanta Fed. She says the pair examined the effect of low interest rates on the $10 trillion of assets that U.S. households hold in instruments such as Treasuries, time and savings deposits, certificates of deposit, money-market funds and municipal bonds.
Next they looked at data going back to 1952 on interest rates one year into a recovery, and found that the interest-rate spread was an average of nearly five percentage points higher than in the second quarter of 2010. Based on the interest-rate differential on $10 trillion, and assuming an average tax rate of 25%, they calculated that spending would have been at least $256 billion. They also calculated the losses in consumption and jobs, They found that, for every one percentage point of interest lost, nearly a half-million jobs and $52 billion of consumption went out the window. The higher numbers included rate-sensitive holdings of pension funds and insurers.
"With the additional jobs that might have been created…the unemployment rate could fall to 6.8%," they said.
Although I believe we'll have at least another test of the lows before any serious rally into yearend, so far the DITM has sailed through quite well, although, fearing the worst, especially in energy (oil) and defense (NOC) I did take my fourth loss in 2 1/2 years (first in 1 1/2) with BTE, which is probably now a buying opportunity - Crisis = Opportunity.
Also called away, but looking good now XLU, which is UP 6 1/2% this year. Barron's dividend column mentioned S&P's Stovall picks of: GIS,UGI,CVX - which I rolled the call forward this month)-HRS and TRV. MSFT has also raised its dividend to the 3% area.
Were I not slimming down for a vacation (I wish), I would be entering these.
NOTA BENE: When I return from So.Cal. I am meeting with my Schwab F/A about starting a Fund based on DITM, for people who either cannot have option approval, or just do not want to hassle the activity of doing it oneself. Estimating a high single-digit return with the safety net, it should definitely beat the above short term interest rate over time!

MONDAY, MONDAY:

Welcome new readers from the DITM talk I gave this past Saturday at the monthly SFBAOG (San Francisco Bay Area Options Group) held every expiry Saturday of the month (barring conflict, as with Oct.).
This expiration had lots of activity, as I had several options (sold puts and calls) expire, either OTM (out-of-the-money worthless) in which case I just keep the premium; or ITM (in-the-money)where I take on or sell the stock - puts or calls, respectively.
I am now down to 15 stocks in my portfolio (more in the family), with this Bear market only endangering 3 of the positions. With these, I continue to milk the call premium and take the 3% or better dividends (much better than zero CDs, etc.) and hold them, much like a Bond, until they invariably return to the Buy price - sooner or later.
The only stock put to me last week was PM (Morris Int'l) at 70; since the current price is below that strike/buy price, rather than accept less than the full intrinsic amount (top part of ITM stock), I sold calls ABOVE the buy price - the 70s, as it goes ex-D Friday, the 23rd.
Despite the fact that nearly 100% of analysts and strategists are calling for a higher year-end market, it is possible things are "different this time". Fortunately, the DITM plan works best when markets go sideways to down slowly (not crashing). As I said in my talk, if a stock moves down a few points at expiry, one can "step down" to the next strike price, still receiving the whole amount originally expected, receiving an even higher dividend %.
I also write a sentiment blog every Monday based on my CMT topic - links can be found at:brentleonard.com

THAT'S WHAT I'M TALKING ABOUT:

1 day before expiry, I rolled out my CHV call to January, from the 90 strike up to 92.50. The stock is currently at 98.85, and I bought it at 101.75 in May ( a $2.90 loss before commissions);then selling the 90 call as a safety net. So far taking in $1437 from the (net of buyback)calls, and $234 from dividends (assuming the Nov. one), net of commissions will be $1671, plus $9241 makes a total credit of $$10,912, less my initial cost of $10,184 ($728), over 8 months is an annualized 10.7%, unless the stock is below $92 1/2 by January 2012. Definitely better than MMFs or CDs!
BTW, had I just bought the stock, sans DITM calls, even with dividends, I would have gained only $56 for the 8 months - or 0.8% annualized.

Y'R WELCOME!:

Less than an hour after I took my 4th loss in 2 1/2 years (first in a year and a half) on BTE, an energy stock, the market turned positive taking BTE with it. 15% loss after monthly dividends and call premiums. A relief. Watch it soar now!!!

DOING THE TWIST:

As Barron's outlined a couple weeks ago, it appears that Fed Chairman Bernanke is revising his QE III to the policy of the '60s - to sell short term (driving rates up) while buying long term Tsys (driving rates farther down).
I just put on a fairly safe ( in my view) trade to capture @ 9% annualized returns:
Buy the TLT at 114 while selling an ITM covered call of Dec. 106 (safely below). The "extrinsic" call premium - that which is not part of the ETF in-the-money price- is $1.55 and the MONTHLY dividend is about 3.5%, combining to make 2.25% over the three months, or 9% if done 4 times. Beats less than 2% on the 10-year TSY.

NEEDS VERSUS WANTS:

In life there are Needs (things we have to have to survive) and Wants (things we'd like to have). The same is true in investing. One wants to preserve the majority of one's capital, but can also speculate for higher returns with a varying amount, depending on the environment.
I just did a study on my DITM strategy from its start in early May, 2009 - ironically, just as the Bull market was starting. Since that time the S&P 500 has appreciated (in price) 32.1%, while my continuously improving and fine-tuning DITM is only up 17.2% - with much more safety, and a much better return than CDs, MMFs, and Treasurys.
With all hubris and schadenfreude aside, since the top of April, 2011, things are reversed: My two smaller family IRA accounts (the purest testing of DITM available) are Down 6.7% and 4.3%, respectively, while the SPX is down 13.1%. Ergo, I am able, so far, to nervously but steadily sail through the violent corrections day to day.
While most investors are heading for the doors, DITM is enjoying higher dividend % and lower entering prices on new stock positions, as well as higher volatility in selling both puts and calls. The hybrid nature (bondlike) allows me to focus on the constant payments, not the price.
Still fully invested, September's expiry will be interesting for both sold puts and expiring calls - in or out of the money.