bill,,,,,i don't think i ever mentioned sell calls on leaps is a good idea. i agree with you. the dls strategy is to buy leaps (which your point of slow decays is a great advantage) and sell monthly calls at a proper ratio to protect upside. when the 2.5 year leaps begin to decay significantly like 12 months before expiration then roll those leaps to the new ones that became available...
--- In ConservativeOptionS
>
> Jack,
> Â
> There has to be some logic in our investment decisions. There was mentioned in a previous post of how covered call writing is analogous to owning a Florida condo.
> Â
> First and foremost, what are your criteria for owning the condo? Is it technical? Fundamental? By what basis do you decide on what covered call to do?
> Â
> My favorite tool is using Excel to compare covered writes, just like commercial real estate investors use Excel to compare rental properties. I personally would never sell LEAP options, as the decay is way too slow for me. The greatest decay comes from the first two to expiration. Since we're capping off the upside potential in the underlying, we need to be sure that the relationship between the underlying and the covered call puts as much rate of return potential in our favor as possible.
> Â
> Doing covered call writes in TLT provides a 14% annualized internal rate of return potential. I like that potential for starters. That means TLT can go from 96 to 82 and I still break even, assuming I never roll an option down.  Â
> Â
> It's been one year since TARP and the stimulus package first came on line. Have bonds imploded? Of course not. If rates go up, the first thing that's going up is the front end. Perhaps not so much the in long end. Who knows? We can anticipate hyper-inflation, but who knows if or when it’s going to happen?
> Â
> TLT is basically a 20 year bond. China just issued a 50 year bond. Maybe the US will do the same negating some of the effects you are anticipating as we roll out inflation to the year 2060. Â
> Â
> Until TLT breaks the 89 area, I still think we're o.k. The dollar hasn't made a new low with gold rallying to new highs. US dollar sentiment is HORRIBLE. This is ripe for a counter-trend rally that could knock our socks off. Gold is more overbought than it was in 1980.
> Â
> Don't worry too much about the Fed Heads. Raising rate from 1/4 of 1 percent to 1, 2 or 4 percent may not send the world into the abyss. It would be head smack dab in the middle of a standard distribution. Maybe 70 million retired Americans with 4 trillion in retirement assets is going to stifle future growth.
> Â
> Bill
> Â
> Â
> Â
>
> --- On Sun, 11/29/09, joe & leigh <gass20@...> wrote:
>
> From: joe & leigh <gass20@...>
> Subject: [ConservativeOption
> To: ConservativeOptionS
> Date: Sunday, November 29, 2009, 4:22 PM
> Â
> jack...you should trade (assume you are doing cc's) after ex dividend date usually around first of the month not right after normal expiration.. ...people exercise to capture monthly dividend.... that way you capture the dividend...drjoe
>
> --- In ConservativeOptionS trategies@ yahoogroups. com, "Jack" <nhhobbyfarmer@ ...> wrote:
> >
> > Bill,
> >
> > I began to trade TLT in early May, 2009 as
> > the fixed income portion of my IRA account. To enhance the return I sell
> > calls against my position each month. (We sell the call with the
> > greatest TV, Time Value) This idea was borrowed from the moderator of
> > another yahoo group I am a member of. I liked TLT due to the volume and
> > and liquidity of the options. The on-going trade has worked very well.
> > So far I have never been called early for a dividend, receiving it each
> > month. When called away I replace the position. Often late on expiration
> > Friday, if in the last few minutes of trade it is apparent we will be
> > called the new positions are added. I figure I will capture an extra few
> > days of TV erosion over the weekend and a good use of cash since I
> > would want to re-enter the position on Monday.
> >
> > My concern will be the FED-HEADs starting
> > to play with interest rates. We basically have no place to go but up
> > from where we are currently and that will of course affect TLT. I am
> > looking at TBT as a short term trade ahead of FED meetings. TBF, a
> > non-leveraged ETF, would be preferable to me but the volume is low and
> > open interest in the options is almost non-existent.
> >
> > I have looked over the site you suggested
> > (www.oldschooloptio ns.com) but they do not show any information about
> > TLT, perhaps because it is an open trade? Without exposing information
> > you have agreed not to share, could you write a little more about how
> > you are using TLT and what the plan will be to cope with interest rate
> > increases?
> >
> > Regards and
> > great trading,
> >
> > Jack
> >
> >
> >
> >
> >
> > --- In ConservativeOptionS trategies@ yahoogroups. com, "Bill Ulivieri"
> > <uliv2003@> wrote:
> > >
> > > When the SPX made a recent high, there were only 138 components
> > following suit. Our risk management tools have us in TLT covered writes
> > until the market corrects. IYY IWN IWM TRAN UTIL IWS all failed to make
> > new highs.
> > >
> > > See www.oldschooloption s.com
> > >
> > > For more info
> > >
> > > Regards,
> > >
> > > Bill
> > >
> >
>
> Â
>
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