Whoops! Embarrassing. Sorry.
Lou
--- In ConservativeOptionStrategies@yahoogroups.com, Randy Harmelink <rharmelink@...> wrote:
>
> As mentioned on the JustCoveredCalls group, you're off a decimal point -- 10
> contracts would net you $210, not $2100.
>
> $0.21/$37 = 0.57%
>
> On Sun, May 16, 2010 at 1:56 PM, Louis <loupi3@...> wrote:
>
> > I'm always (like everybody else) looking for a low risk, simple trading
> > plan that doesn't rely on the unreliable (TA methods that work one day and
> > fall apart the next, curve fitted backtesting, unrecognized variables,
> > fundamental analyses that don't work like they should, etc,etc).
> > I like CSP's since they bring in cash rather than spending it and it's
> > always good to play with OTM (other people's money). The risks involve, I
> > think, mainly being forced to purchase a stock at a lower than expected
> > price, and this may often be a benefit, depending on the stock, but in a
> > declining market, it can be tricky.
> > It also ties up capital.
> > I'm thinking about a crude but possibly effective plan. I doubt if I'm the
> > first to think about it. It's too obvious and that's why I want to throw it
> > out to see what I may be missing.
> > I'm considering selling front month OTM puts (say roughly 10% OTM for some
> > downside protection), with a diverse group of underlyings in order to spread
> > the risk. A possible tweak would be to wait until expiration week, which
> > would diminish risk even more, but at the sacrifice of benefiting from the
> > time decay.
> > Taking one position as an example I'll use AXP for no other reason than
> > that I happen to be looking at it at the moment.
> > At the moment it's selling at $40.64. If I sell the May 37 put at .21, then
> > I'll receive $210 per contract,$2100 for 10 contracts, less commissions. If
> > I consider $37000 as the amount risked, then the return is about 5.6%,
> > (although there is no actual investment).
> > Compounded, the initial 37K which you leave sitting in your brokerage
> > account would double in about 13 months.
> > The delta,BTW, on the position is -12, which I think loosely interpreted
> > means a 12% chance of closing ITM.
> > AXP may or may not be a good choice for an example, but considering the
> > principle alone, what are your thoughts?
> > Lou
> >
>
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