Ken,
You partially answered my question.
I am a full-time trader looking for strategies that complement the one I have, primarily for diversification purposes. Since I require monthly gains to pay the bills and grow the account I am seeking strategies that can consistently deliver 2% – 4% monthly gains with minimal drawdown periods. It seems like Dr. Joe’s strategy may do that, but it is unclear which is why I asked the question.
Your reply begs one more question. I believe the market is going to tank again and trade at a reduced level for some time, maybe as long as 4 – 5 years, very much like the 70’s and early 80’s. If this is the case, how would this strategy perform in a sideways to slowly trending down market?
Thanks for the thoughtful reply.
Jeff
From: ConservativeOptionS
Sent: Sunday, February 28, 2010 9:59 AM
To: ConservativeOptionS
Subject: RE: [ConservativeOption
Jeff:
It is important to keep in mind that this strategy (DLS) is designed as an income strategy and not truly a capital gains strategy (although capital gains are absolutely a part of the overall income strategy).
That being said, if you define “losing months” as a month where the premiums from expired short calls did not equal the unrealized losses on the long DITM leaps, then yes, there were definitely months that were losers by that definition, however, I still generated the income from the short calls, and took the opportunity as the market was falling to buy more Leap calls to sell near month calls against. As the market rose again, the gain in value of the LEAP calls (some of which get sold per the DLS strategy as markets rise) substantially outweighed the cost of buying back the now ITM short calls that had been sold. I assume you have read Dr.Joes paper and understand the philosophy behind what I have just explained, if not, I recommend reading through it (it took me quite a few read thrus to “get it”).
In my opinion, these past 2 years or so have validated the strategy laid out in the DLS paper. I got in before the total crash, rode through it using the strategies outlined, and on the subsequent rise, again followed the “rules” and have been very pleased with the results. This leads me to try to answer the first part of your question; as to monthly returns, in all honesty, they will vary depending on which market cycle you are in, and how you define “monthly returns”. I have taken out anywhere from no less than 2% a month in income to some months where I have seen 5% or more (during the volatility explosion especially).
Some will argue that you need to look at your “net portfolio value” to figure out the monthly returns, and in many areas of my investing and trading that is exactly what I do, but for the money set aside for this strategy, unless you are of the firm commitment that the markets will crash, and NEVER come back, then this strategy, in my mind, is one that should be evaluated by the guidelines Dr.Joe has set out in his paper.
I hope I have answered your question adequately, but feel free to ask for any more specificity if you like.
Ken
From: ConservativeOptionS
Sent: Saturday, February 27, 2010 7:29 PM
To: ConservativeOptionS
Subject: RE: [ConservativeOption
Ken,
What is a reasonable monthly return using this strategy? Do you experience any losing months?
Thanks.
Jeff
From: ConservativeOptionS
Sent: Saturday, February 27, 2010 4:05 PM
To: ConservativeOptionS
Subject: RE: [ConservativeOption
Jeff:
DrJoes DLS strategy that I have been trading is his DITM Leap Call Strategy vs. Monthly Short Calls as detailed in his paper in the files section. I have not used his Leap DITM Put strategy, although after reading his paper and some of his posts here I will be spending some time studying it and possibly implementing it at some time in the near future if I find I understand it as well as I do his DLS strategy.
Ken
From: ConservativeOptionS
Sent: Saturday, February 27, 2010 3:40 PM
To: ConservativeOptionS
Subject: [ConservativeOption
--- In ConservativeOptionS
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> Jeff:
>
> Let me just say I have been trading DrJoes DLS strategy since ...
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Ken,
Great to know that DLS is working for you.
Can you pl. update us if you are trading the LEAP strategy or selling short term PUT against the DITM LEAP PUT strategy?
Thanks,
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