Monday, January 14, 2013


Although it is just a snapshot in time (much like a stock chart) my year-end statement of the small IRA, (which is a microcosm of my 4-year-old trading system: Deep-In-The-Money Covered Calls) showed a return of 9.27%. It reflects the purest example of DITM, as there are no MRDs ( minimum required distributions), nor contributions to, this IRA.

9% is not a world beating return, but it is somewhere in between the DJIA and the S&P 500 of 2012, without much of the whipsaws - due to its "safety net". Several timeframes of DITM have consistently returned around the 9-10% area.

Combining the two previous tables - stocks opened in 2011 and those opened in 2012 - here is the total for 2012:

YEAR(Open) #trades net%
GRAND ..2011 ..20 ..9.31% ....6
TOTAL ..2012 ..21 ..6.19% ....4.5
full year
..41 ..15.50%
average ..21 ..7.75% ....5.25

Using the conservative "covered call" option, and selling it below the Buy price of the underlying stock, one avoids most of the sine wave corrections and noise of the volatile market, while receiving (based on 20-25 stocks) a dividend every 3 trading days - Payday!   The DITM investor is also receiving decay from the sold call option every day ( called negative theta, to the Greeks), while the market stumbles in a sideways direction, which it basically has since 2000. With DITM as the base for the investment pyramid, one can also play Bull rallies outside of it with SPYs and other sector ETFs, call options, favorite stocks, etc.

After spending 3 1/2 hours last weekend at a lecture by legendary market analyst Martin Pring and his group, the prospect of an extended Bear market ( in Inflation adjusted terms) is corroborated by 18-year cycles - especially after the largest Bull market in present history - 1982-2000. Although extended rallies are probable, the timing of them - especially with current government intervention- is unlikely and unrealistic.

Obviously DITM is not for everyone. Only persons with the consistent interest in the stock market, who would be dedicated to monitor the plan occasionally would be successful at it. An interest in the most basic of option strategies - covered calls - is desired, but can be learned easily.

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