Send Message
View as an RSS Feed
  • The REIT Way To Feast On Dividends And Sleep Well At Night  [View article]
    Hi Brad:
    What would you consider as a prudent percentage of REITs in a portfolio?
    Happy Thanksgiving!
    Nov 26, 2014. 07:44 AM | Likes Like |Link to Comment
  • The Facts Are In - MLPs Work Great In IRAs  [View article]
    Here's a simple way to have MLPs in IRAs without the associated tax angst discussed thoroughly this article as well as several others...use options. Obviously limited to those MLPs with options, but certainly numerous candidates are available. An example using Enterprise Product Partners, LP (EPD)...I'm going to round the numbers slightly. Let's say I want to be long 100 "units". You could buy 100 units at around $6K debit OR buy 1 Jan 2015 Call with a strike price of 60 plus sell 1 Jan 2015 Put with a strike price of 60. The Call will cost around $4.00 ($400 per call) and the Put can be sold for around $7.50 ($750). So to place this position on we get paid $350. EPD will pay around $400 in distributions between now and Jan 2015 (probably will increase). The option position will perform similar to the owning 100 units of EPD and identically at expiration. If EPD would double in price to $120, the all unit position would be worth $12K ($6K increase). The option position would have the Call price at $60 ($6K increase) and the Put would be $0 and expire worthless. Works the same below 60 at expiration, though you would have the obligation to purchase the 100 units of EPD. Same end results.

    In an IRA, which you can sell completely cash secured puts (you would need slightly more than $6K cash to do this trade in an IRA), you have NO tax issues with the option position but significant ones (depending on whom you believe) with the unit purchase sales and maintenance (sending K1s to brokers, recapture, etc.). Seems like a better way to sleep well at night...I know how to handle taxes on simple option trades.
    Apr 12, 2013. 11:07 AM | Likes Like |Link to Comment
  • MLPs - A Reality Check ?  [View article]
    Thanks for another great educational article...though discouraging as I own several MLPs (KMP, EPD, LINE, ETE, APU) and will be selling shortly as I don't want any additional long term tax issues as you've highlighted. Though I don't believe I'll leave the space as I'm positive on energy. Some of these I'll just short a long term ATM Put and buy a long term ATM Call. I know how to handle the taxes on these Best regards, Steve
    Mar 27, 2013. 02:52 PM | Likes Like |Link to Comment
  • Covered Calls: Finding The Sweet Spot  [View article]
    Hi Reel Ken:

    Your analysis and articles are usually exceptional. I saw this article title and almost immediately "de-followed" you as an author as "covered calls" and "sweet spot" seems to me very contradictory (actual term I thought of was more derogatory). Thankfully I read your 4th paragraph with the emphatic I'm pleased to keep following! Naked call index sales make so much more logical sense (even more so with portfolio margin versus Reg-T), even though brokers continue to state unlimited risk on naked calls, which is simply a ridiculous exaggeration. Never saw an index melt up enough to cause unlimited pain.

    An example of a covered call...
    Purchase 100 shares XYZ and sell 1 ATM calls. The easiest way to analyze a position is to examine the relative position delta. For simplicity sake, the short ATM call has a delta of -0.5 and we know the long stock has a delta of 1. In essense, you are long an equivalent of 50 shares to start the trade. If the shares appreciate the short call delta will get more negative and the long delta stays the same. So...when the stock is doing exactly what you want, the equivalent position is getting less and less long. You're right in your stock selection but make less and less money. Conversely, if the stock price falls, the delta of the short call gets less negative and the equivalent position is actually longer than when you started the orginal position. Not mentioning the fact that you're longer AND you've lost money. If someone wants to be long 50 shares at the start of the trade, purchase 50 shares. Why cap your upside? Why would the token call premium be considered as protection of the position?

    Some of your articles on portfolio protection are excellent (you should write a book) and real protection versus the pseudo protection provided by covered calls.

    An alternative to protect a stock position...purchase the shares, buy puts on the shares, sell twice as many call spreads. Position is a butterfly with a call kicker. You're protected on the downside and still have unlimited gains (except between call spread strikes).

    One other comment...stocks & indexes do not mean revert. I would say though the VIX does mean revert...

    Best regards...
    Dec 18, 2012. 12:13 PM | Likes Like |Link to Comment
  • Technical Tuesday: Setting Up For What?  [View article]
    CBOE will adjust the contracts based on special such thing as a free lunch. Check their website...
    Nov 28, 2012. 12:42 PM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 5 Of 5)  [View article]
    Excellent series...too bad you could not choose to pay into dividend paying whole life instead of Social
    Nov 14, 2012. 12:28 PM | 3 Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 3)  [View article]
    Hi DD:

    Interesting series...a few questions if you wouldn't mind answering.

    If we're interested in using the life insurance as an alternative to fixed income, why couldn't we act like the large company and purchase single premium whole life (albeit on a much smaller case) to have the maximum cash value? Could you even purchase a new policy every year with that years fixed income allocation? If I don't plan on considering withdrawals until 60+, do I care that it's a MEC? The alternative of purchasing bonds you would be paying the taxes on an annual basis.

    How would the young woman in the example fare if she would purchase a single premium whole life policy for $60K annually for the 9 year example?
    Nov 9, 2012. 09:14 AM | Likes Like |Link to Comment
  • VIX Options: 'Belts And Suspenders'  [View article]
    Hi Ken:

    I've used a similar strategy in the past, though usually ITM sales. Could you clarify your statement on the VIX showing "negative intrinsic value"? The VIX put prices for March 2013 are lower due to the fact the price is based on the March VIX futures (which is quoted at 22.60 as I write this comment). The $0.90 March 17 Put quote is all extrinsic...
    Oct 10, 2012. 01:40 PM | Likes Like |Link to Comment
  • From BRIC To MIST: The New Story Of Emerging Market Growth  [View article]
    What's wrong with old fashion farmers "fertilizer"
    Sep 13, 2012. 07:57 AM | Likes Like |Link to Comment
  • 2 Strategies For Facebook For Bears  [View article]
    Long Jan 21P/22C 2013 strangle and short weekly strangle in a 2/1 or 5/2 ratio. With larger positions it's easier to make delta neutral as FB is closer to 22 and the position will have a positive delta (add additional long Puts in Jan to start delta neutral). Good luck...
    Aug 13, 2012. 02:10 PM | Likes Like |Link to Comment
  • 2 Strategies For Facebook For Bears  [View article]
    Too true...excellent points. One of the trades I like with one of these "who knows" type of stocks is the use of calendars with a twist. Sell the near term straddle/strangle and buy more of the far month straddle/strangle. Position has positive theta and if the stock explodes or collapses you win big. Also you're selling higher vol than you're buying. Stock doesn't move...sell the next week straddle/strangle.
    Aug 13, 2012. 12:19 PM | Likes Like |Link to Comment
  • A Collar On Steroids - The Covered Call Ratio Spread  [View article]
    True a fly hedge would reduce margin. There are brokers that allow cash secured selling of puts in IRAs...
    Jul 13, 2012. 06:13 PM | Likes Like |Link to Comment
  • A Collar On Steroids - The Covered Call Ratio Spread  [View article]
    Nice article...pleasant to see a discussion beyond simple collars. I've run into the "lament" of writing calls on stocks just before they decide to significantly increase in I like the idea of covering the cost of the put hedge with a ratio. I wonder if the author would comment on reducing the "cap" due to the writing of calls...have you considered selling call spreads instead? Selling an Oct call spread, while not bringing in as much premium, does not cap upside except between the strikes.

    There must be some delay in publishing articles as the current price for TXI is around 44...

    At a $44 price...another alternative would be sell two call spreads to bring in the additional premium. Might be getting a little too complicated, but you would have a synthetic fly (long put (at 40 strike) with long stock = long call, short two calls (45 strike), long call (50 strike)), with an additional long 50 strike call and the two short puts. Interesting position to model...if stock explodes the position would be very profitable. got me thinking, which I appreciate.

    Best regards...
    Jul 13, 2012. 02:04 PM | Likes Like |Link to Comment
  • Apple And The Triangle Option  [View article]
    Hi Reel Ken:

    As a way to reduce margin & cash needs for the short would this "Triangle" method compare to purchasing two April 2013 ATM Puts on AAPL, selling one ITM monthly Put for expected ( share appreciation, and selling another OTM Put monthly to finance the purchase of the April 2013 Puts?
    Jul 10, 2012. 08:47 AM | Likes Like |Link to Comment
  • Microsoft Versus Apple: It's On  [View article]
    Hi George:
    Do you ever sell call spreads on stocks you own instead of covered calls? Granted the return if unchanged is not as great, but with a stock like AAPL that has a tendency to spike, an uncapped upside (beyond long call of spread) might be desirable.
    Jun 20, 2012. 11:48 AM | Likes Like |Link to Comment