Hi,
Investing in a Bond ETF yielding about 4% is not the best approach to the
fixed income portion of the portfolio. There is an asset class called
exchange traded debentures or mini bonds. These trade on the New York stock
exchange, usually with a face value of $25 and can be purchased just as you
would stocks with interest paid four times a year. They are rated by Moody's
and S & P.
As of today, you can buy a portfolio of investment grade (Moody Baa3 and S &
P BBB- and higher) mini bonds with yields ranging up to 8%. An assortment of
10 different issuers with prices below the call prices yields an average of
7.38%, or a return on $300,000 of $22,140, $10,000 per year higher.
Dan (dan2fl)
-----Original Message-----
From: ConservativeOptionStrategies@yahoogroups.com
[mailto:ConservativeOptionStrategies@yahoogroups.com] On Behalf Of joe &
leigh
Sent: Sunday, May 16, 2010 3:18 PM
To: ConservativeOptionStrategies@yahoogroups.com
Subject: [ConservativeOptionStrategies] DLS-PAPER TRADE #1
Mike Cleveland posted this recently:
"One thing that would really benefit me, and possibly others, would be to
"start from scratch." I'm sure you have done this in your paper, but it
would be nice to be able to discuss it together to help clarify, for people
like me who are new.
It would be good to do a "From the Beginning" post. What is a "DLS?" How do
you find good trading candidates? Do you do any ETF "DLS" trading? How far
out in the future do you look for candidates? What strike prices? How do you
enter? When do you adjust?
If you just did one post per day, starting with the basics, it would allow
us to follow along and ask questions.
Would you consider this?"
Most of the answers are in my paper. I am modifying the expiration date for
the short calls and will revise the paper when i get a chance.
I can establish an initial dls position and go through the mechanics.
However, once established it is pretty boring. Really nothing to do until
expiration of the short calls which i am going to change from a one month sc
to a 3 month sc which i will explain shortly.
1) Critical: establish a buy-hold portfolio
For simplicity, let's say you have a $500,000 retirement portfolio and you
would like to allocate 40% into equities and 60% into fixed income.
Equities 40% is $200,000. I trade only diversified ETF's and the one's I
use most often are SPY, IWM, EFA and EEM. I believe it is very difficult to
be successful trading the dls strategy using less than 10 contracts
initially. If your capital only allows 10 to 15 contracts trade only one of
SPY, IWM or EFA. EEM is too risky, imo, if you can only trade one ETF in
the dls strategy. Again for simplicity, let's choose to use all the
$200,000 trading IWM in the dls strategy.
2) Next we have to select a % return goal for your $500,000. Remember,
each of us have different goals and we will not all select the same goal.
For this example, I will select one. Since returns are higher with more
risk and lower with lower risk and since dls portfolio strategy has
significantly less money at risk than a buy-hold portfolio I am going to
select a 10% annual return on our $500,000 or $50,000 per year.
A diversified bond ETF is yielding about 4%. If we put our $300,000 fixed
income portion in that we should return about $12,000 per year. If we set a
20% return on our dls portion, $200,000 * 20% is $40,000. The $12,000
and $40,000 yields $52,000 which is a 10.4% portfolio return.
Summary:
Portfolio:
$300,000 in a bond ETF (like BND) goal 4% or $12,000
$200,000 in IWM using dls strategy goal 20% or $40,000
Total return $52,000 or 10.4%
TO BE CONTINUED
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