Dan, the purpose of the exercise is a discussion of the dls strategy......just like picking a percent return and monthly income goal...everyone will have a different goal. the fixed income is just a suggestion. what you use for your fixed income portion is your decision.....remember any higher yield comes with higher risk.....and i look for small risk. also,,,,,not impressed with rating companies....they all gave the mortgage securities that almost collapsed the financial markets triple A ratings so a Baa3 rating is not impressive...drjoe
--- In ConservativeOptionStrategies@yahoogroups.com, "Dan" <delta1@...> wrote:
>
> 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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> ------------------------------------
>
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