Friday, December 12, 2014

Game Stoploss

Despite aforementioned disappointment at the lower Volatility causing a switch after 5 years from DITM to the Leap Strangle strategy, I continue to test it in my small IRA, but with 1/2 of the funds in cash until the end of this downturn - which I expect any day, with an upsurge into NY Day and beyond. My column:, extols the virtues of 2015 technically and cyclically - feel "free " to read and even Subscribe weekly to it if you like. It is now in its third year, as the DITM is in its 10th.

A good example of why I like DITM as well as Leap Strangles for double digit returns as well as Safety! is the blood-letting in many metal and energy stocks, but also Gamestop - GME.
In my IRA I note that the stock is down from my buy price - $39- t just below $33 on 200 shares (normally a $1200 paper  loss! According to my Schwab EDGE platform, having sold the 2016 40 strike (actually OTM when sold) , the profit on "milking" the premium is $1130 - so, adding $265 in dividends, the position is actually about even, if closed out today. Strangles work the same way, but add Sold Puts to the equation.

Remaining DITM positions include GE and INTC. 

Thursday, December 4, 2014

LEAP Update

As the new year approaches, and the 2nd anniversary of my LEAP Strangle strategy implementation I am starting to record the results great and not-so-great as the first batch -2015- are due to expire. With the opening of the 2017 Leaps this Fall, almost all Calls and Puts have been rolled (Out, up and Down).
Today's rollout was on Ford (F) which was bought in January 2013 - 23 months ago:
Cost: 200 shares at $13.69 : $2738
Profit from dividends and options: $1330
Current Price $15.83: $3166
Profit if closed out: $1276, or 46.4%
Instead I rolled out both Puts and Calls for $214 and $268, respectively- another $482. So if F stays UNCH until January 2017, profit is $1758 or 64% over 4 years, or 16%/year with no monitoring or fine-tuning.
The best part is the safety net provided by funds brought in: there would be no loss unless F dropped below $7/share (dividends included).

Not so profitable have been my mistaken positions into Gold and Energy, which still have time to play out as they are rolled down and out.

Tuesday, October 28, 2014


Now that we are through (hopefully) the volatile Sept./Oct. period and into the best 3 months of the year for the markets -statistically, I put on three recent positions for the Leap Strangle.  I gave a talk last weekend to the San Francisco Bay Area Options Group on the results so far.
The concept is high yield with money brought in from both OTM (out-of-the-money) options for immediate insurance, which decay over time.
The Three trades were:

        LeapYear   #shares  stock Px Amount     Call          Put
2017 200 18.34 3677 366 490
2016 500 6.84 3426 396 187
2016 500 7.84 3929 941 1212

We shall see in the fullness of time!

Monday, August 4, 2014

Zero Dark 2000

In another futile attempt to breach the triple zero on the SPX the expected selloff last week was aborted today (so far) byt he old reliable McClellan Oscillator dropping below -50 Friday (minus 89!). August has not been very profitable the past three years, and the JASON (July-Nov.) period spells caution as well. A/D on the NYSE was terrible (-2288 net declines); Insider selling is still heavy, but steady - especially Gold, where commercial traders are huge.

Monthly figures for ETF flows for June finally arrived, with increases in all, except bonds - margin interest again rose to almost new highs, which is positive for the market, via correlation.

Here are the numbers:

Date> 8/1/2014 7/26/2014
Indices: DJIA  16493 16960
  NAZ  4352 4449
SPX  1925 1978
WklyVolume (Bshs). naz/ny 9.9/3.6 8.7/2.9
Specul.Ratio hi=bullish 2.8 3
Sentiment: put/call-CBOE  68 60
VIX>50-alltmlow=8.8 17 12.7
Advance/Dec-NYSE.. 484/2772 1503/1720
Weekly Net: -2288 -217
     Cumulative: 161470 163758
Weekly  NYSE hi/low 260/191 435/91
New Hi's/Low's Nasdaq h/l 149/254 201/145
McClellan  Oscillator -89 -31
McClellanSum .+750/-1000 287 599
Newsletter Inv.Intel -Bull:tues 55.6 56.5
Surveys Bear:-5yrs 16.2 17.2
AAII  -Bull :wed. 31.1 29.6
Bear  31.1 29.9
COT:SPX w/w large/small (net)k .3/5 .2/6
COT:gold  comm.hedg long-short.000 (149k) (160k)
CEOinsider selling 22:1 44:1
off.&bd b/s.vs. 10% holder b/s 175:25 175:20
3-box rev Bullish%-  74 83
US equity -ICI Fund Flows WeekDelay (1.4B)
MMF flows Change in $B (8.8B) (2.2B)
MargDebt- top (300M) monthly  464B MAY
ETF:mthlyEqty/ Int'l/Bond-$B 1116/440/274 MAY
2-yr Tsy Yield: Inflation 0.48% 0.49%

Monday, July 28, 2014

Endless Summer

Still waiting for a meaningful correction, but could not resist a trade on Calumet (CLMT) - DITM covered call of Feb 30, with the stock at $33 (10% protection through the best months of the year - Nov.-Jan.
Had to wait for it to go ex-dividend , which it just did. 8% plus some downward Insurance of a few pence.

N.B. as of May 1 - 2014  , 4(closed) trades have netted 14%  annualized; Including closed trades (8) started in 2013 - up 13.4%. No losses, but low Volatility (IV).

Also covered in this blog is the LEAP portfolio, which offers more safety and yield by selling covered LEAP (longterm) strangles - out-of-the-money covered calls and puts. One can put on a trade an just let it stand for months (years), or fine-tune it for more yield and safety (cash brought in.
In the latter case, I rolled my AA (Alcoa) puts upward and out to 2016 for a $300 gain, as the stock has jumped more than a double since I bought it. With the LEAP plan, although my covered calls of 2105 are at the 10 strike (now ITM) it will most likely be called away in January (rolling out deep in-the-money calls is seldom very profitable - extrinsic premium).
2017 LEAPS should be coming out in October, but why sit on a way ITM put that sells for $.02??

Finally, as an example of how DITM can act as a hedge as well as conservative yield-provider (consistently 10%), another trade rears its pretty head today. Just as an infrequent loss can be devastating (but less than just owning the stock) since one can keep from getting "shaken out" with the lower covered call, so can a pleasant outlier occur to the upside:

This week Kinder MLP (KMP) was called away from my IRA after 6 months - with 6 months left on the January 2015 call!!! Very unusual, but happens if the buyer wants to exercise it way ahead!
I bought KMP at above $80 and sold the in-the-money (ITM) call at 77.50; the stock immediately dropped 10 points, but I held on due to the June call, which became int the money again in June, and I rolled out to January '15. Called away at 77.50 I would have lost $300 - but with DITM (call premiums and dividends) I netted $437 after commissions, for a 10.85% annualized profit - right on its usual mark.  

Friday, July 11, 2014


In my latest DITM trade the good news for FCX - Freeport Copper- is that the annualized return, net of commissions, spreads, and other slippage, was 11% - too bad it only lasted 3 months! Buying it in April and having the August call (the 31 ITM) exercised on my, with the stock over $38 it was too ITM to be rolled out in time.

Since this 200 share trade was in my small IRA, I shall probably do another DITM trade soon to keep this statistic "pure", not mingled with the LEAP Strangle plan, which I now prefer, with Volatility as low as it is these days.

Per my Schwab account statement for the semi-annual 2014 period, what with above slippage and sloth, Reg T-3 (3 day settlement of funds, etc.) the IRA gained 3.40%, making it an annualized 6/80%, unless the VIX picks up, and premium returns.

Keep the Faith!

Monday, June 23, 2014

Winner Winner, Chicken Dinner

This past weekend being option expiry (Saturday after the third Friday of each month), another stock was called away in DITM - since the Bull market increased the price of STX (Seagate Tech.) too high  to roll out another six months. Of course the appreciation would have been nice, had I just owned the stock, but the comfort of the cushion was pleasant as well.

Also nice to see was the overall profit for this 8-month holding period:
200 shares were bought at $9,636, ITM calls were immediately sold for $1105, and dividend received were $258, for a total profit  of $918, including the takeaway amount of $9191 (after all commissions).  
That amounts to 14.29% annualized to 12 months, making my 2014 total of 9 completed trades - 12% if annualized from YTD.

Wednesday, May 28, 2014

Semi Annual Update

Those of you still tracking the DITM strategy, as an alternative to Zero Interest rates (stocks with safety and yield), a pleasant surprise after six months of 2014.
Although the steadily upwards rise, thanks to the Fed ex Machina, has flattened option IV (volatility), which results in the price of the calls, after only 8 closed out trades in 2014 (not including rollouts) the results are in. With only one minor (-$57) loss, the average "annualized" gain was just over 10% - 10.22%.
The last one, today, was a call-away of LO, which jumped so far a rollout was not do-able - too far ITM (in the money) for "extrinsic" premium in the call option. The best measure of volatility - the VIX- is now at a recent record low - sub-12 (11.51), which is a bit worrisome if one looks at the 1-year and 5-year charts of the VIX when it breaks down below 12!
More data at:

Despite a fool's errand of trying to time the market, I'm waiting through the seasonally weak June to enter new positions. Possible candidates could be - CSCO, INTC, KKR, STO, even AAPL7 - which is the 10 share lot of APPLE.

Wednesday, May 21, 2014


"Into every life a little rain.....". Or - Why I like hedging stocks with LEAP options (Longterm Equity AnticiPation) calls and puts that expire in January of future years - 2105, 2106, etc.
The strategy involves buying a stock of better than average quality ( A or B in the Schwab rating system), with or without dividend, with a price usually between $8 and $20; then SELLING a LEAP put and call, out of the money (called a LEAP Strangle - the same option price would be a Straddle- using the decay of the option to bring in money to hedge any losses. The trade-off or liability of selling these options is - the call limits any profit above the higher OTM (out of the money) "strike" price; the lower OTM put makes one liable to take on more stock, for which sequestered money must be set aside - Cash in an IRA, margin from stocks in a taxable account.

Here is an example of a major loss in one of my accounts, which should be offset with the double-digit returns of successful LEAP trades:

Just Energy was bought in November of 2013 at just under $7 ( 1000 shares for $7000 plus commission). It recently tanked from just above $8 to its current $5 level, a $3000 drop, or loss - $2000 from its original price.
However, by selling 10 calls at 7 1/2 for 2016, and 10 puts at $5, much of this loss was wiped  out.
The call was bought back at: $312; it was sold originally for $1,042 (all commissions included). At the same time the 5-strike put was sold at $1.55 each - 10 cost $1,533.
Due to time decay of the options , the put can be bought back at $1.20 ($1,200) for a $333 profit, despite JE's dramatic fall. The stock can be sold ( a stop loss has been put in at $5.70) for $5700.
So instead of a $2000 loss ($3000 from its top), the numbers are:
Call: $730
Put:    333
Dividends: 6 times $50 (after foreign taxes): $300
Sold stock: $5700
Actual profit (if JE goes lower and gets stopped out) +$63 - not bad for a Torpedo!!

As for the total LEAP portfolio in this account (6 stocks including JE), as of May 1 - six months into the strategy ( excluding NOK, which was bought a year earlier), it is up 12%, or, if annualized for 12 months, using a 5 month average holding period, 29%. 


As for MY personal accounts using LEAPS, also stating with one position in Dec. 2012, adding ladderlike monthly up to over 20 positions currently, I recently closed out my first and only position - as it turned out, prematurely - Trina Solar, a rather risky, Chinese company that looked technically weak, declining fro its recent high of over $18/share to $10! Today it jumped up over $3.

Still the potential "Loss" was ameliorated by the LEAPS, as follows:
Bought 500 shares in August of 2013 just under $9 a share ($4500), selling a 10-strike call and a 7-strike put. When TSL jumped from 8 to 18, I tweaked, or fine-tuned it by rolling both the put and call higher and farther out in time - 2015 to 2016 for more "insurance" money, which I returned when it dropped to 10.

Bottom line, the numbers went:
Stock cost: $4500, sold at $10.45 for $5215 - net $715
Unfortunately, by buying back both puts and calls after a downturn, the IV (Implied Volatility - which is the key in deciding what to sell - or buy back)  was so high, I actually paid more to close out the options - $450- despite the rollup, out and time decay !! Another negative of TSL is the wide Bid-Ask spread; wise to avoid in case of buybacks.
 So after holding TSL for 9 months (no dividends) my net profit (no loss) was $260, or 5.8% - annualized if held 12 months, 7.78% - not bad for a loss - better than MMFunds or CDs.

In conclusion, what I really like about the LEAP Strangle is the high reward with a hedged risk, and very little monitoring until the Leap expires. If the stock then settles lower (or higher) another "Collar" of Leaps can be put on for another two years.

Thursday, May 15, 2014

Leap Update

Back from vacation - time to update the DITM and LEAP trades.
On May 15 I closed out the Trina Solar, as it looks weak, chartwise, plus I'm not big on China accounting or green/eco stocks with a pending major downturn on the way.
Metrics on TSL (Trina) were as follows:
                                                DEBIT                         CREDIT
Bought 500 at $8.97               4494
Sold calls -2015 10-strike                                                                  1211
Sold puts- 2015 7-strike                                                                     937
Rolled Up puts to 10                                                                          493
Rolled up Calls-2016 -15       597     
Rolled up Puts-2016 -13                                                                    1333
Bot Calls to close                   1199
Bot Puts to close                     2638
Sold stock                                                                                           5216
TOTAL:                                  8928                                                    9190

Profit: 262   5.83% for 9 months, or 7.78% annualized. Not bad for a "loser".

Friday, May 2, 2014


a little rain must fall!
After 4 good years of  DITM earning 11% in my small IRA ( a DITM microcosm), 2013 actually lost a small amount, due to 5 losses on Energy and gold stocks (my bad, not the DITM strategy). With selling covered calls BELOW the buy price (5 to 10%) such losses should be rare in a 5-6 month timeframe, but better Sector Selection would solve that.
So far in 2014, several trades are still ongoing, but the completed trades (4 wins with one $57 loss!) averaged 4.7% YTD, or 14.1% annualized. Tighter stops are required, and the LEAP strategy is doing much better.  Although final results won't be in until the Leaps expire in 2015 and 2016, one family account I do them in is up 29% over 5 months average holding period.

Wednesday, February 26, 2014


As I mentioned in my talk before the San Francisco Bay Area Options Group last weekend, my Leap Strangle (see Older Posts) has taken precedence over DITM for the time being, at least until Volatility (i.e., IV) widens. In my talk I showed a table of my family portfolio of Leaps that had a paper (marked to market) return of about 7% for basically four months.

As this Bull market marches onward into its sixth year, I've become more concerned with safety, although, as the results of my personal Leap portfolio show, not only is the safety cushion much wider, but so is the Reward! As explained earlier, the "Cushion" is the money brought in by selling both Leap calls (covered) and puts for a goodly portion of the purchase price of the stock.

Not only do I want to ladder the expiry date of these Strangles (2015, 2106, 2017), but my entry has been almost monthly from just over a year ago; of the 20  different positions I hold, 10 were entered in the last quarter of 2013, four this year.

Adding up the current (paper) profit, of the $81,449 invested in stock, the walkaway profit (if positions were closed out), including dividends, is  $19,173 - dividends are $2868 of this total. Despite the sliding scale of entry time, the profit is 23.54%!

Full disclosure - if the trades are done in an IRA, or non-margin account, the result will be less, as one has to include in the cost basis the sequester of funds to buy (if necessary) the stock "put" to one if the stock drops and REMAINS below the put strike price at expiry. 12 of the stocks have an 2015 expiry; a few were rolled up (down) and out to 2016 - 2017 won't be available until October of this year.

Saturday, February 8, 2014

What Now?

After a 32% gain in the U.S. stock market in 2013 only a Pollyanna would expect more of the same, without profit-taking, rebalancing, and sector rotation. I recently wrote of a defensive investment strategy that, in my opinion based on thirty years of option experience, has both a high degree of safety and a lofty double-digit return - selling LEAP Strangles ( put & call straddles with different strike prices).

Having tested this strategy so far with 20 positions, I'd like to present three of the latest positions with projected  yields. (These trains have probably left the station, so are not to be considered recommendations, as exceptional as they may be) :

On August 16 of last year I purchased 500 shares of Trina Solar (TSL) at $8.97 a share, ($4494 incl. commission) while simultaneously selling a covered call (Leap) of 2015 - the $10 strike price-, for $1211, and selling the same Leap expiry put - the $8 strike- for a credit of $937. The intent was if the stock remained, or at least returned to, the same $9 price on Jan. 2015' third Friday, both options would expire worthless and I would keep the combined $2148 for a 47.8% profit, only to repeat the process with another two year Leap Strangle.

However, as it turned out, the stock went on a tear, doubling in the next few months, so I decided to raise both the put and call strikes to match and bring in more "security" money. In a trade off, this does increase the risk a bit, especially when you upgrade the call for a debit, to release more of the take-away price from the call- from $10 to 15, released $2500 and cost me a debit of $597. Raising the put was for a net credit : $1353.
If the options expire worthless and I sell the stock at its current price - $14.40, my return would be 135%, or  $6083, thanks to the fine-tuning for the stock appreciation.

The next two examples are a bit simpler, sans rollouts - making the monitoring almost nonexistent:

YRC Worldwide trucking, at $18.90 a share on January 7 of this year, fell within my boundaries; the Implied Volatility (IV) on the options, which normally falls within the 20 to 30 range, was 100 and 120, meaning the prices were huge! By buying 300 shares ($5679) and selling the 2016 expiry 20 call and 17 put ($2599 and 2839, or $5438) I got almost all my investment back immediately! Since Volatility usually indicates a fragile situation, the stock dropped to almost twelve within a few short days, but rebounded back to its current $21 level.  Should the stock remain here or above, returns would be $11,438 less the $5679 ( $5759) or over 100% (doubling my investment over two years.
Of course, there is the possibility of the stock dropping below the $17 put strike and more stock would be put to me, unless I closed it out beforehand.

The final example is on an ETF - the triple strength Gold NUGT which has Leaps. On February 6 I bought 100 shares for $35.95 - well out of the $5-20 LEAP Strangle range- but again I could not resist the IV of 93/98. NUGT shares cost $3604 (with commission); options brought in $1544 and $1380 - $2924. The put strike price for 2016 (at which time I assume gold will be higher) was $30, and the call at $40- room to run, both ways.
Finally, doing the math on this trade: If NUGT stays or settles at the initial price of $36, two year return will be 83%; if it rises to $40 or above (called away) - 94%.
If it falls and stays below 30, both the put and stock will lose money as the call gains by decay - occasional monitoring of gold will be prudent. If slightly below 35, one might consider another two-year collar (strangle) since they own the ETF already.  

Full disclosure: Low-priced stocks can be an indication of weakness - they can go bankrupt, Pink Sheets (OTCBB), or candidates for mergers or takeovers, in which case option treatment will vary. Stocks mentioned above, as well as the LEAP strategy, are only for informational use, not recommendations. Common sense and brokers' requirements dictate a fairly extensive knowledge of options and their dangers. None of the above pay dividends - this may also be a positive factor. Cost basis will differ if done in a tax-deferred (IRA) account where loss sequester is required, not margin equity from stocks. 

Friday, February 7, 2014

Leaping Ahead

Recently Stephen Todd pointed out that since 1900 there have only been three times that the stock market has risen five consecutive years up until now: the '20s, '40s, and '80s, which did not end well! A fourth time it rose 9 years - 1990s (say no more). For this reason it seems logical to assume a sideways to down market-strategy would be prudent. I also thought this in May 2009, when I started testing my DITM (deep-in-the-money covered call) hedging strategy, which happened to coincide with the recent 4th five-year up market, although my test account actually rose 11% per year for 4 years, then flatlined due to poor/early sector selection and low option Volatility caused by the Up market. It also increased the cushion from being 5 to 10% in the money protection, to much higher, for which I am now thankful.

With a higher likelihood of stocks now moving sideways to  down for the near future, an even more prudent strategy is being tested - one that a client successfully employed several years ago when I was a senior option trader (ROP) with Charles Schwab. This client would turn the tables, so to speak, from being the "patsy" in the game to being the House, or casino - by selling options rather than speculating on potential direction. The concept is to buy a quality stock in the $5 to 20 range that has LEAP options and sell a covered call (never a "naked" one), and simultaneously selling the same year Leap put- both slightly out of the money.

Normally one can immediately bring between 1/3 and 1/2 of the funds spent on buying the stock, providing a better cushion than the above DITM plan; although being similar to it, the Safety and Reward are both considerably higher, and the monitoring is almost negligible for about two years- at which time the options expire. Although potential annual double-digit profits are likely, direction is not important, but being called away at expiry does increase the return.

Since one year ago I have amassed a Leap portfolio of 20 positions, mostly done recently.

As with any investing strategy there are Risks attached:     
Below is the logic of the strategy with a theoretical example, and the "Visible Hand" of five fingers ( A through E) of what can happen over time.
As with "E", more stock can be put to the investor - so they must want to own the stock.

**Worst case:
Stock gets taken over or involved in merger - adjusted options

gets complicated, but no loss involved; XYZ goes bankrupt: 1 in 1,000

Profits on other 15-20 stocks make up for loss.

***commissions not included; stocks bought in IRAs, etc. must sequester Max Loss(e.g.$700)

In IRAs, profits become 8%: and 11% annualized (if called away)

If repeated every two years, no stock cost - profits much higher.

A Strangle is just a Straddle with different prices for calls and puts




Buy 100 shares of XYZ at $9.00


Sell 1 LEAP covered call -
Jan.2016 10-strike price @ $1.20


Sell 1 LEAP put-Jan. 2016 7-strike price @ $.80


4% Dividend; 9 quarters @ $9/Q=



% Profit:

(over 12 months, not 26)

If stock called away at $10 in Jan.2016

% Profit:


Stock settles at $10 on expiry-
Maximum profit, repeat NEXT two years
raise option strike prices.


Stock stays the same: $9
Maximum profit, repeat for two years

* If stock falls to $7 ON Jan.21, 2016 - Keep $281, resell 2 more years out (loss of $200 on XYZ).
Sell $6 put; sell $8 call (2018)
No cost for stock this time!!

*Worse Case: Stock falls BELOW $7 put strike price ON Jan.21 2016:

100 shares of XYZ are "put" to you; repeat D

Thursday, January 23, 2014


As I have written copiously about DITM (Deep-In-The-Money) covered calls as being a safe haven for investors/traders seeking an alternative to less risky strategies, with my extensive testing of it for nearly five years, solid proof came today in my most recent trade. Although DITM missed out on much of the unexpected 30-someting point 2013 rally, the upsurge did provide a wider cushion with further ITM security. It also hedged this losing trade, which I finally gave up on - one of the very few, and first of 2014: Ensco (ESV).

Looking back, just about all of the DITM losses were a result of being in the wrong Sector(s) - Energy, Precious Metals, Natural Resources: CLF, VALE, QRE, PGH, etc.
ESV also belongs there.

I bought only 100 shares of ESV in May of 2013 for just over $62 - $6214; selling the Sept. $57.5 ITM call and again the Jan.2014 call, as well as  nice 5.1/2% dividends, I finally sold the shares today at $52 5/8, or$5253. Instead of suffering a $1000 loss on the 100 shares, my net loss was $57 - if I would have waited for an uptick I could have broken even!  So basically what I lost was Time - much like leaving $$ in a MMF at zero percent.

After four years of testing in my small IRA, which gained @ 11% per year average, 2013 was a flat year, partially due to my Sector selection (see above) expecting a reversal, and also the steadily rising markets produced a mild Volatility, which impacted the option prices negatively. That is why I moved much of my assets into another defensive strategy - more Reward and even less Risk, but a little more complicated for option tyros: LEAP Strangles ( buying $5 to 15 stocks and selling Leap Out-Of-The -Money Covered Calls
 and Puts against them. This is outlined in recent posts of my DITM blog:  

A few of my Leap holdings (not recommendations!) include F, BAC, FTR, NOK,

Thursday, January 16, 2014

DITM Recap 2013

As mentioned before in this blog, after 4 years of  11% average returns in my small IRA - the microcosm of the DITM strategy, 2013 finally hit stall speed; partly because the steady rise of the market killed Implied Volatility (IV), rendering the VIX @ 13-14, and partly because my stock selection happened to be premature - going into Energy, Chemicals, and gold.

Here is the non-GAAP best-efforts analysis of the round trip trades closed out in 2013:
First the winners - 20 total, averaging 12.70% with an average 5.1 month duration.
Losing trades were only 3, but which amounted to over 40% of the winners, since losses are usually quite a bit larger by the time they are under water and decided upon.

Since it is difficult to arrive at a profit/loss since the same money is used for more than 1 position during the year, the annualized percent of 7.16% is based on the net profit. Hopefully 2014 will be an improvement, especially of there is a substantial correction, which is hedged against, raising the Volatility and premium of the sold Call options, as well as the 3%+ dividends from the underlying. Hopefully the commodity sector will rebound this year as well.

Monday, January 13, 2014

Happy New Year

As readers have noticed there has not been much activity in DITM recently. After 4 years of successful 11% returns per year in my small IRA ( a surrogate for DITM) the Groundhog Day steady rise in the markets have crushed Volatility, and new positions and rollouts have been infrequent.

More concentration has been on the Leap Strangle strategy which I embarked on just over a year ago. This has done better, despite a errant reliance on gold and precious metals' stocks, which should recover in time. Those that do not will result in rolling down of the calls and taking on more stock via the sold OTM puts (in a sense, doubling down).

As of today, with the first position - BAC- taken in Dec.'12, and adding 1 or 2 laddered monthly through last week, where I leapt into YRCW! Quite a risky trade, but the IV was over 100 on both puts and calls, to where I brought in with option premium almost as much as I spent on the stock! There is a reason for high IV - RISK- which I saw the next few days, when the stock dropped to below my sold put, at least temporarily.

Even with a very recent paper loss in YRCW and four other gold, silver and coal stocks ( of the 17 now in the strategy) going negative so far, the winners have propelled the 13 month return to a cumulative 13.67%. This does not include any max loss requirement for the puts if done in an IRA.