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  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    Try to plug it into the P/L chart and see. The chart looks similar, but provides you less protection on the downside and higher losses on the upside.
    Jun 19 07:49 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    You can make an adjustment to the number of long and short puts every 3-6 months, depending on how much is the monthly contribution.
    Jun 19 01:21 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    REALLY??? Lets see:

    EIA YTD return: -17.4%
    SPY YTD return: +16.2%

    EIA return in 2008: -39.1%
    Jun 19 11:30 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    Please do.
    Jun 18 01:25 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    Okay, I see your point.

    The time decay is not linear. It is the highest during the last 3-4 weeks of the option life. This is why the theta per day is much higher for short term options. I wish it was free money, but it's not because stocks tend to move.
    Jun 18 10:28 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    It is not greater, it is supposed to offset the yearly cost.
    Jun 18 08:59 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    I'm sorry, can you clarify the question please?
    Jun 17 11:42 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    I'm not a golf expert.. but the in a big drop IV will spike and greatly help if this is what you mean.
    Jun 17 10:57 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    Thank you Reel, this is very true. If the markers are smooth, then the payment of the hedge is more linear, but if it jumps, it is not.

    I will need to check the numbers with Chris, 10% cost of the hedge is not typical, most of the years you should be able to pay for the hedge or being behind maybe 2-4%.
    Jun 17 12:48 AM | Likes Like |Link to Comment
  • Using The 5-10-20 Rule To Trade IBM [View article]
    Well, it all comes to risk management. You look at the P/L chart and you see your breakeven points. Few weeks ago I opened a 200/205 IBM calendar. IBM went from 202 to 210. I didn't think it goes above 210, but what if I'm wrong?

    When the stock goes above the breakeven points, the losses start to accumulate quickly. So I adjusted by closing the 200 and opening the 210. An hour after I did that, the stock reversed. It is 203 now. I closed the trade few days ago for 18% gain. I didn't adjust, I would be sitting on 50%+ gain. But if I was wrong and the stock went to 215, the trade would be losing big time.

    Hindsight is always 20/20, but risk management is the key in those trades.
    Jun 13 03:07 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    "What are your assumptions for commish and b/a spread plus remaining value when you roll."

    I described the effect of commissions in one of my previous comments. To save you the effort of scrolling up few pages, I will copy and paste my comment:

    Lets do a quick math using a 100k portfolio:

    You buy 10 long puts, then you sell 3 short puts each week:
    So 3*52 weeks = 156 contracts, plus 10 long contracts = 166 contracts. That's 333 round trip transactions. At $1 per contract, That's $333 or 0.33% of the portfolio value PER YEAR. With IB, it will be even less.

    As for slippage - we are talking about SPY, the most liquid vehicle in the world. The spreads for ATM options are usually 1-2 cents. Even with 2 cents slippage per contract, we are talking about $666 or 0.66% of the portfolio value - again, PER YEAR. This is worst case scenario, the real slippage is probably around 1 cent.
    Jun 11 12:39 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    Thanks for the explanation Reel.

    Many new traders ask the same question on our forum, and after we explain to them how it works, they stop worrying. Many times assignment is actually a blessing - it saves you commissions and slippage, even for deep ITM options, you usually lose some of the extrinsic value.

    However, It is surprising to hear those horror stories from people that pretend to be options experts. They talk about "an assignment with a reasonably high probability, all the attendant losses and tax consequences, blow up and blow up BIG" etc. Makes you wonder about their true motives.
    Jun 11 12:33 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    There is really no need to watch it every moment. The risk of assignment before Thursday is extremely low.

    btw, now the strategy can be implemented with shorting SPY options 2 weeks out, we are discussing this on the SteadyOptions forum right now.

    But yes, some degree of involvement is required (unless you let Chris to do the job).
    Jun 10 09:25 PM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    I completely agree - the results have been added and not compounded for simplicity. But you are right that effect of outperforming becomes much higher if results are compounded.
    Jun 10 09:03 AM | Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    In 2009 the hedge cost 10% due to strong outperformance of the stocks. If SPY was selected instead of stocks, SPY hedged would return 22.144% compared to SPY return of 23.454%.

    In a year when my stocks return 33%, I'm completely fine giving up 10% to the hedge.

    "During the bear market where the strategy returned 27% verses a loss of 38% in the SP 500 implies that "full hedge" again underperformed by 10%." - would you mind explaining how did you reach the 10% underperformance number? If my mathe is correct, the strategy outperformed the S&P by 66%. Doing SPY hedged btw would return 20%, outperforming SPY by 58%.
    Jun 10 09:02 AM | Likes Like |Link to Comment
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