dan, hopefully i corrected the most by deleting the first one and posting another with correction.
re: position sizing......
--- In ConservativeOptionS
>
> Hi Dr. Joe,
>
> Thank you for a very detailed and enlightening post on your strategy.
> I would like to clarify one item, having to do with position sizing.
> If I wish to limit my position size to 27 contracts, you wrote that the
> details would be as follows.
> November sell to open 9 contracts ATM, 9 contracts 5% OTM and 9 contracts
> for 10% OTM for February expiration.
> Repeat for December and January each with one month later expiration.
>
> Since I will have 81 contracts open at a time, if I wished to use cash to
> secure the puts would I not need enough cash for 8100 shares?
>
> Dan (dan2fl)
>
>
>
> -----Original Message-----
> From: ConservativeOptionS
> [mailto:ConservativeOptionS
> leigh
> Sent: Thursday, March 25, 2010 9:28 AM
> To: ConservativeOptionS
> Subject: [ConservativeOption
>
> mike my basic strategy for cash-secured puts is below: i do vary it on a
> regular basis but
> much the basic principles i use to trade it. i use almost exclusively
> trade iwm. as you will read below i sell atm, 5%otm and 10%otm puts with
> equal lots of each. over the past 194 months from jan 1994 to present iwm
> dropped greater than 5% only 30 times or 15.5%, greater than 10% only 8
> times or 4.1% and over 15% only 3 times or 1.5%.
>
>
>
> CASH-SECURED PUT STRATEGY
>
>
> INDEX
> Diversified ETF: SPY, IWM (favorite), EFA, EEM, QQQQ, for example.
>
>
> POSITION SIZE
> Determine the size of the position if you were buying that index
>
> for your buy-and-hold strategy. Do NOT leaverage !!!!!!!
>
> If you wanted 2700 shares in your portfolio, then do not STO
>
> more than 27 contracts. Assuming you have no shares currently.
>
>
> EXPIRATION
> Ninety days (90)
>
> Leg in 1/3 of calculated position size every 30 days
>
> ie. If 27 contracts is your determine final position size, then
>
> Nov expiration STO 9 contracts Feb expiration
>
> Dec expiration STO 9 contracts Mar expiration
>
> Jan expiration STO 9 contracts Apr expiration
>
> Feb expiration initial 9 expiring to be managed
>
>
> STRIKE
> 1/3 or 9 contracts ATM
>
> 1/3 or 9 contracts 5% OTM
>
> 1/3 or 9 contracts 10% OTM
>
>
> FUNDING
> 100% secured with cash or 50% cash account and 50% in
>
> fixed income ETF
>
>
> MANAGING OPEN POSITIONS
>
>
> BEFORE EXPIRATION
>
>
> If stock is above put strike no management required.
>
> What are the options if the index is decreasing in price?
>
>
> 1. Close position at a loss
>
> 2. Buy leap puts for protection
>
> If decreases 5%, purchase 50% leap puts
>
> If decreases 10%, purchase other 50% leap puts
>
> Strike at CSP (cash-secured put) strike price or
>
> at current stock price based on your risk
>
>
> Since the above 3 strikes gives one 5% protection
>
> and I am willing to accept some loss, I place a contingent order in
>
> the initial setup to purchase leap puts when stock decreases 10% and
>
> I choose a strike that is 10% ITM. Ie. Initial setup stock was
> $100.
> The initial strikes would be $100, $95, $90 (0, 5%, 10% OTM)
>
> I woud put a contingent order in to purchase the leap put with a
> strike
> of $100 when underlying decreases to $90.
>
>
> 3. Roll the CSP
>
> Roll out and down and decrease number of contracts
>
> Can be done for net credit or approx break even
>
>
> example: based on Dec 2, 2009
>
>
> IWM @ $58.99
> CSP is Feb 58 Put @ $2.84 ---10 contracts
>
>
> Look at June 56 Put and Sept 56 Put
>
> June 56 @ $4.35
> Sept 56 @ $5.55
>
> Market drops 5% today to $56
>
> Using option calculator the
>
> June 56 increases to $5.57
>
> Sept 56 increases to $6.67
>
> Feb 58 increases to $4.32
>
>
> BTC Feb 58 for 1000 * $4.32 or $4320
>
> STO June 56 - 8 contracts for 800 * $5.57 or $4456
>
> You have reduced your risk 20%
>
> or
> STO Sept 56 - 6 contracts for $4056 or
>
> 7 contracts for $4732 reducing risk 30-40%
>
>
> Regarding rolling CSP's: each time you roll you should be
> able
> to decrease your exposure. First roll usually can decrease
> 10
> contracts to 7 or 8, second roll the 7 or 8 to 5 or 6 and a
> third
> roll the 5 or 6 to 3 or 4. All without adding new money and
>
> frees up margin each time
>
>
> 4. Do nothing until expiration
>
>
>
> AT EXPIRATION
>
> Stock > put strike price
>
> Continue selling CSP same as above
>
>
> Stock < put strike price and assigned
>
> Sell covered calls 3 months to expiration
>
> Strike NO less than cost basis, ie put strike at assignment
>
> If premium is small because stock has dropped
>
> significantly, sell at a strike less than cost basis if you
>
> understand how to manage covered calls and prepared to
>
> roll out to avoid being exercised before expiration
>
> below your cost basis
>
>
> GOAL be exercised at or above cost basis and go back to selling
> CSP's
>
>
>
>
>
> --- In ConservativeOptionS
> <michael@> wrote:
> >
> > Dr Joe,
> > I'll start it off. I like writing front-month cash-secured puts. I
> like to do them on somewhat high-beta stocks (e.g. TSL, IPI) and well as
> more stable stocks such as PFE, MRK, XOM. I tend to avoid samll drug and
> biotech stocks becase of past dissapointment. I try to enter these csp's on
> down days. I will take a profit at .05 to .15, if reached, before
> expiration. I write only enough puts (3 to 10 depending on the strike price)
> that if assigned I'm equally happy and then will write calls on these. I
> will consider putting a protective collar on some of these if they advance
> far enough although I prefer to be called out. I do this in a tax-deferred
> account. In my taxable account I like to do front-month credit spreads on
> ETF's.
> >
> > Michael
> > www.safe-options-
> >
> > --- In ConservativeOptionS
> <gass20@> wrote:
> > >
> > > i really would love to hear from people who are doing dls (calls) and
> short puts selling cc's if assigned,,,,
> etc....do you use protection with long puts....maybe we can get a discussion
> going....drjoe.
> deleted
> > >
> >
>
>
>
>
> ------------
>
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