Options Trading: A Little Knowledge Is A Very Dangerous Thing [View article]
Fair points but I maintain that there is merit to combining a trading plan with covered calls to enhance profitability and contain losses. Perhaps I merely cling to my misconceptions in ignorant desperation! :)
One approach to mitigate the risks you identify is to combine a trading plan as described with *short-term* covered calls. That way, on a big stock-pop the exposure to a pullback event is limited (by time) and the theta-decay on the call continues to yield small additional gains until expy.
Or, if analysis and risk-aversion and desires for the capital justify it, simply close the position, taking the profit on the stock up to the sold strike-price and eating any remaining premium on the call. Even this way, the covered-call approach typically yields more profit than the trading-plan alone.
Options Trading: A Little Knowledge Is A Very Dangerous Thing [View article]
The big knock against covered calls in these comments is that you'll miss the profit from a big pop -- you took the premium and passed on the profit over your strike. But a solid trading strategy includes exit points, eg "I'll buy MSFT at $29 and sell it at either $27 or $32," and the high exit point represents a marvelous strike price for a covered call. You were going to sell there, anyway, and "miss out" on any additional profit. If the underlying declines, the 'gain' on the sold call takes out some of the sting.
Am I the only one here who has ridden a wave all the way up....and all the way back down?? Exit points are essential!
I think the straddle approach (#4, above) tends to benefit more from rising volatility than from a big move in the underlying, although a big move is also profitable. If you'd bought a delta-neutral mix of April 13 Puts and April 25 Calls a week ago, you'd have a nice profit already.
I have an Iron Condor, myself, that will profit if VVUS closes between $12 and $27 at April expiration. I thought to take advantage of what seemed to be super-high options IVs by selling the volatility. I'm getting crushed by the ever-increasing options IV, but I still like the range so I plan to hold it for a couple of more weeks. Theta is my friend! Besides, the options' bid-ask spreads are pretty large so getting out is an expensive activity. (NOTE TO SELF: check out options volumes before committing!)
Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
The author is trying to create a repeatable income stream while reducing the risk to the downside by hedging. In the absolute worst case, he will lose ($3 per share * 100 shares) + $225, or $525. Along the way, he anticipates making $924; this would be all profit in the absolute best case, but still a $400 gain in the absolute worst case. All for committing $2300 for one year. Who wouldn't want 16% per year for a 'worst case' year??
Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
I believe OptionsHouse lets you write cash-covered puts in an IRA. You have to apply for approval, asserting experience with options-writing. They have extremely good rates for non-IRA accounts!!
Why Europe Is Doomed: The Euro Crucifix [View article]
Al -- Check out the linked "Gold Standard" articles. The author addresses your point, just not as obviously as you'd like. The debt's too damn high AND they can't devalue their way out of it.
Clearly, Greece is responsible for having taken on its large debt, but let's put that aside and consider just the simple present fact that the substantial debt exists and must be answered. Given Greece's debt, the central issue is that pre-EU they could devalue/inflate over time to crawl out of the hole, but now that they're pegged to the euro this is not an option. As long as they're pegged, they're hosed.
Thanks for all the articles and especially for the clarifications today.
I understand it must be irksome to feel that you must explain every point at undue length or risk being misunderstood and unfairly criticized. Isn't that the bane of every published genius and teacher?
I hope it cheers you to learn that your comments today have inspired me to review PSW with an eye toward membership.
Outlook 2011: China Says No More Cars, Down Goes Auto Industry [View article]
Dian,
In your article "Outlook 2011: China Says No More Cars, Down Goes Auto Industry" you use symbol 'SAI' for the SAIC motor corporation of China. I think 'SAI' is not the symbol for that company as you see here: finance.yahoo.com/q/pr...
This has been an illuminating collection of comments. I appreciate DPK's commentary in particular, today.
I have observed that Phil calculates profit/loss solely on the amount needed to enter the position, NOT using the amount put at risk. In Hedge #4, for example, it seems like a .40 investment to make .60 with high probability of success is a no-brainer, until I realize that I have to risk $11 to do it. No matter how you slice it, selling an $11 put means I'm on the hook to buy at $11, even if the underlying is worth $0 at expy. That's $11 of risk. From a reward/risk standpoint the maximum return is .60/11 (5.5%), a far cry from 150%.
When I read Phil's articles I often wonder if I am overly concerned with Risk. After all, Phil is apparently rich and I am still a wage-slave. Would Phil be as successful if he'd emphasized Risk more, and Cost of Entry less, all these years?
"AAII Investor Bullish Sentiment index rose to 57.56 from 48.23 .... Sentiment indicators are highly variable, but this reading is probably best read as bearish."
I'm a newb. Can you explain what's bearish about the sentiment report? Is it the value 57.56? Or the rise from 48.23? Or is bullish investor sentiment generally bearish?
Thanks for the great article, and thanks in advance for helping me understand this point.
The Failure of Capitalists to Act Like Capitalists [View article]
Have we really transitioned from regulating/limiting how people and corporations can make their money to telling them how/when they must spend their profits?? Parenteau and that ilk are the capitalists who fail to act like capitalists. (Assuming they were capitalists in the first place.)
As to incentives for getting corps to spend more (although I reject the idea that there's anything wrong with putting some away), how about refunding some multiple greater than one of the tax paid on any profit which is subsequently re-invested within 24 months?
Options Trading: A Little Knowledge Is A Very Dangerous Thing [View article]
One approach to mitigate the risks you identify is to combine a trading plan as described with *short-term* covered calls. That way, on a big stock-pop the exposure to a pullback event is limited (by time) and the theta-decay on the call continues to yield small additional gains until expy.
Or, if analysis and risk-aversion and desires for the capital justify it, simply close the position, taking the profit on the stock up to the sold strike-price and eating any remaining premium on the call. Even this way, the covered-call approach typically yields more profit than the trading-plan alone.
Options Trading: A Little Knowledge Is A Very Dangerous Thing [View article]
Am I the only one here who has ridden a wave all the way up....and all the way back down?? Exit points are essential!
Another Option Strategy For Vivus [View article]
I have an Iron Condor, myself, that will profit if VVUS closes between $12 and $27 at April expiration. I thought to take advantage of what seemed to be super-high options IVs by selling the volatility. I'm getting crushed by the ever-increasing options IV, but I still like the range so I plan to hold it for a couple of more weeks. Theta is my friend! Besides, the options' bid-ask spreads are pretty large so getting out is an expensive activity. (NOTE TO SELF: check out options volumes before committing!)
Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
Why Europe Is Doomed: The Euro Crucifix [View article]
Clearly, Greece is responsible for having taken on its large debt, but let's put that aside and consider just the simple present fact that the substantial debt exists and must be answered. Given Greece's debt, the central issue is that pre-EU they could devalue/inflate over time to crawl out of the hole, but now that they're pegged to the euro this is not an option. As long as they're pegged, they're hosed.
Freaky Friday - Alpha 2 Says 'Cliff Ahead' [View article]
The Metastasizing State-Bankruptcy Meme [View article]
4 Inflation Hedges for 2011 [View article]
Thanks for all the articles and especially for the clarifications today.
I understand it must be irksome to feel that you must explain every point at undue length or risk being misunderstood and unfairly criticized. Isn't that the bane of every published genius and teacher?
I hope it cheers you to learn that your comments today have inspired me to review PSW with an eye toward membership.
Outlook 2011: China Says No More Cars, Down Goes Auto Industry [View article]
In your article "Outlook 2011: China Says No More Cars, Down Goes Auto Industry" you use symbol 'SAI' for the SAIC motor corporation of China. I think 'SAI' is not the symbol for that company as you see here: finance.yahoo.com/q/pr...
Thank you for your informative article.
4 Inflation Hedges for 2011 [View article]
I have observed that Phil calculates profit/loss solely on the amount needed to enter the position, NOT using the amount put at risk. In Hedge #4, for example, it seems like a .40 investment to make .60 with high probability of success is a no-brainer, until I realize that I have to risk $11 to do it. No matter how you slice it, selling an $11 put means I'm on the hook to buy at $11, even if the underlying is worth $0 at expy. That's $11 of risk. From a reward/risk standpoint the maximum return is .60/11 (5.5%), a far cry from 150%.
When I read Phil's articles I often wonder if I am overly concerned with Risk. After all, Phil is apparently rich and I am still a wage-slave. Would Phil be as successful if he'd emphasized Risk more, and Cost of Entry less, all these years?
Equities Stage Impressive Positive Reversal, Ignoring G20 Dithering [View article]
"AAII Investor Bullish Sentiment index rose to 57.56 from 48.23 .... Sentiment indicators are highly variable, but this reading is probably best read as bearish."
I'm a newb. Can you explain what's bearish about the sentiment report? Is it the value 57.56? Or the rise from 48.23? Or is bullish investor sentiment generally bearish?
Thanks for the great article, and thanks in advance for helping me understand this point.
Most Overbought Stocks in the S&P 500 [View article]
The Failure of Capitalists to Act Like Capitalists [View article]
As to incentives for getting corps to spend more (although I reject the idea that there's anything wrong with putting some away), how about refunding some multiple greater than one of the tax paid on any profit which is subsequently re-invested within 24 months?