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Dr. Terry Allen  

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  • How To Use Options To Buy Fiscal Cliff Insurance Protection [View article]
    This strategy is essentially the same as my earlier article although I have added some calendar spreads selling weekly options to generate short-term revenue to assure that a small gain results if the market moves higher.

    VXX can fall about 15% before any loss would occur on the downside (on the upside, the higher the better). With VIX already low by historical standards, I think VXX is unlikely to fall by this amount in the next 5 weeks no matter how spectacular the rally might be. Of course, I never believed AAPL would fall as far as it has, either.
    Nov 13, 2012. 08:44 AM | Likes Like |Link to Comment
  • How To Use Options To Buy Fiscal Cliff Insurance Protection [View article]
    You pose an interesting question, but volatility is hard to predict. If a deal is reached in Congress,volatility is bound to plummet (although it is pretty low already) while no deal means much higher volatility. It's a crapshoot guess at this point.

    Enjoy your studying.

    Terry
    Nov 12, 2012. 08:20 PM | 1 Like Like |Link to Comment
  • How To Use Options To Buy Fiscal Cliff Insurance Protection [View article]
    Thanks for you words of support. I don't get them often. Most people complain that the strategies are so complex (and convoluted to many).
    Nov 12, 2012. 05:11 PM | Likes Like |Link to Comment
  • A Timely Test Of The Ultimate Hedge Against A Market Crash [View article]
    I wouldn't sell puts on VXX because it historically tanks over time. Jan-14 puts would be especially bad to sell. The portfolio I suggested is far better because it makes a small gain over a large range of possible stock prices (including a drop of over 10%) yet offers huge gains if the market does seriously tank.
    Nov 10, 2012. 04:18 PM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    Yes, you buy them outright. Covered calls are like covered stock - there is some other offsetting value. When you own stock and sell a call against it, it is called covered stock because the stock (a long position) is covered by the short call (a short position).

    An uncovered call is just the same as just owning a call - there is no offsetting other call like there would be in a calendar, diagonal, or vertical spread (all of which have one long option and one short one).

    I understand that this whole thing is confusing. Buying stock is like playing checkers and investing in options is like playing chess - you can study it for a lifetime as I have done and still have more to learn.
    Nov 10, 2012. 04:13 PM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    I have not calculated the interesting number that you ask about. The graph shows that if VXX doubles like it did last summer when the European crisis hit (a crash really didn't come but fear escalated), the portfolio would have more than doubled in value. So it would have made about $4500. If you had a $45,000 and the market fell 10%, that gain would offset your loss. In this crude comparison, the options portfolio would cover 10 times as much as money as the stock portfolio. Not bad.
    Nov 10, 2012. 04:06 PM | Likes Like |Link to Comment
  • A Timely Test Of The Ultimate Hedge Against A Market Crash [View article]
    I agree that bonds are due to drop but I don't think I'm smart enough to guess when it will happen so I have stayed away from trying. I will check out TBT however.
    Nov 9, 2012. 11:28 AM | Likes Like |Link to Comment
  • A Timely Test Of The Ultimate Hedge Against A Market Crash [View article]
    TZA is a little too low in price to get decent options spreads off. Since the options are more important to me than the underlying, VXX works better for me.
    Nov 8, 2012. 03:34 PM | Likes Like |Link to Comment
  • A Timely Test Of The Ultimate Hedge Against A Market Crash [View article]
    In the linked article I give all the exact positions. I have since sold 4 Nov-12 45 calls against the uncovered Jan-13 45 calls just to pick up a little premium. I think it is unlikely that VXX will get over 45 by next Friday.
    Nov 8, 2012. 03:30 PM | Likes Like |Link to Comment
  • A Timely Test Of The Ultimate Hedge Against A Market Crash [View article]
    I have only a single put butterfly, long 141s and 135s and short 2 138s. I never let assignments take place. Tomorrow for the weeklys I will sell the 141 puts and buy back 2 138 puts (each spread) and not bother with selling the 135 puts because they will be trading at less than the commission would cost.
    Nov 8, 2012. 10:23 AM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    I have been a college professor most of my life and in the academic world the Dr. is used. By the way, I don't have a Ph.D. - it is a Doctorate in Business Administration.
    Nov 5, 2012. 04:53 PM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    I didn't hide anything - all the spreads are there in the article. I understand that it looks horribly complicated but it was the best way I could figure out how to get coverage in both directions.
    Nov 5, 2012. 04:52 PM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    I agree with you perfectly.
    Nov 4, 2012. 09:37 PM | Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    A couple of things. First, I hope you won't hold my PhD against me. I'm embarrassed enough having it myself.

    Second, while my little strategy is convoluted, it does two things you deny. First, it provides insurance that doesn't cost anything (like your put purchase would cost). Second, it isn't a perfect hedge. If VXX falls more than 14% it starts losing money. I can live with that possibility.

    I am not a contrarian or otherwise. I accept the fact that I have no idea which way the market is headed. So I put some of my money in a hedge that will pay off big time just in case the market does tank. It helps me sleep better at night.
    Nov 4, 2012. 09:36 PM | 2 Likes Like |Link to Comment
  • The Ultimate Protection Hedge Against A Market Crash? [View article]
    I totally agree with you, and have most of my money is on a big AAPL bounce. Still, it doesn't hurt to have some protection in case there is a general market meltdown, especially when the protection will probably make a little at the same time.
    Nov 4, 2012. 09:31 PM | Likes Like |Link to Comment
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221 Comments
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