Tuesday, May 29, 2012
Those of you who were smart and brave enough to follow this "safety net" strategy should have come out of this nasty 10+ % correction with very little damage - in fact the washout has produced a very attractive entry point for future positions, due to: Lower stock prices, which brought much higher Volatility and option premium to sell, as well as a higher dividend %.
This DITM plan offers up to a 10% safety net by selling a Call option below the price that the stock was bought at, and offers a 10-15% annualized return on combined option premium and dividend, according to my extensive testing for more than a year, in all kinds of markets.
Investors who have been in Index funds or unhedged stocks have actually incurred negative returns over the past decade, with the future not looking much better, in lieu of the global economy. Of course there will be occasional rallies, which can be participated in with ETFs or options, but the prospect of assured income instead of "Hoped for" appreciation is certainly preferable.
Everyone reading this should at least look into this plan to see if it is useful for at least a portion of their assets. Its only weakness is a full blown Bear market, which has happened only once or twice per decade since 1900 - even then, one should lose far less than a portfolio unhedged, as well as having some time for warning.
Recent trades placed in my accounts include:
LO with a Sept. 115 call
TAL with an Oct.30 call
LMT with a Dec.77.5 call - all three ex-D tomorrow, the 30th.
SFL has a little more time - Ex-D June 13
Some other June ideas: TOT, LEG, PM, HNZ, HUN
Posted by DITMcalls at 11:54 AM