tom, have you read my paper in the file section of this group on diagonals? i never all new money as my position is increasing and my short calls go in the money. i sell enough leaps to cover the cost. ie i sell when the market is high. i add and replace those leaps when the market is down. ie i buy when the market is low. i also don't trade 10:10 ratio. that way my leaps appreciate more than my short calls so my overall position continues to increase even if the underlying is 20% above my short call strike...drjoe
--- In ConservativeOptionS
>
> Scott & the group,
>
> I typically use ETF's as the underlying, not as much premium I know
> but a lot less risk and I don't have to get into a lot of detailed
> research on individual stocks. I start out looking at things as a
> covered call with somewhere around a percent and half premium per
> month if not called with the intention of holding the underlying for
> several months, rewriting or rolling calls each month. Then I look
> at 9 months or more out and see if a Diagonal will work, again with
> the intention of rolling out every month.
>
> Below is as trade I currently have on MDY. I had been holding the
> ETF and doing covered calls then changed to the diagonal last
> December. Note, when converting from CC to Diagonal I selected a
> longterm call with a delta between 80 and 90 and used the delta to
> adjust the position size to be equivalent to the original covered
> call position I was in.
>
> 12/21/2009 -$33,578.25 BTO 7 Jan2011 85 Calls @ 47.95
> 12/21/2009 $946.72 STO 7 Jan 134 Calls @ 1.36
> 1/15/2010 -$630.00 BTC 7 Jan 134 Calls @ 0.90
> 1/15/2010 $1,381.48 STO 7 Feb 137 Calls @ 2.00
> 2/5/2010 -$44.13 BTC 7 Feb 137 Calls @ 0.06
> 2/5/2010 $441.76 STO 7 Feb 130 Calls @ 0.65
> 2/18/2010 -$2,603.23 BTC 7 Feb 130 Calls @ 3.70
> 2/22/2010 $686.76 STO 7 Mar 138 Calls @ 1.00
> 3/16/2010 -$3,693.48 BTC 7 Mar 138 Calls @ 5.25
> 3/16/2010 $981.70 STO 7 Apr 146 Calls @ 1.41
>
> Current value of position = $42,051.50
>
> As you can see I've had to add cash to the position when rolling out
> due to the run up of the underlying ETF but I have solid gains in the
> long leg that more than makes up for it. To date the annualize
> internal rate of return is 81.7% (per EXCEL's XIRR function)
>
> Now I'd like to take back out a some of the cash I've had to add in
> by rolling up the long leg for a credit as follows:
>
> STC 7 JAN11 85 @ 62.70
> BTC 7 APR 146 @ 2.60
> STO 8 JAN11 100 @ 48.20
> STO 8 MAY 149 @ 2.15
>
> This gives me a credit of $5230 while also increasing my position
> size from 7 contracts to 8. My question to the group is; "Does this
> sound like a good move?" The only reservation I have is that the
> spread on the longer term call is pretty wide but I've been pretty
> consistent with getting fills in the middle of the spread.
>
> BTW., I've used this same strategy with SPY and more recently XLF &
> IYR but with smaller positions.
>
> Thanks for your comments.
>
>
>
> At 10:02 PM 4/6/2010, you wrote:
>
> >
> >
> >Hi Tom,
> >
> >I had looked at that and yes it is considered a synthetic covered
> >call. I have found it locks up a lot of capital, but I find it
> >hard to find enough premium to make it worthwhile on the short.
> >
> >I have traded diagonals and calendars more. I am curious if you
> >are targeting certain historical volatility or IV as part of the
> >formula. Calendars I shoot for conservative 15% return and exit.
> >
> >Scott
>
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