Fred, read my post above about the fixed income.....i use multiple modalities as my fixed income portion.....not only BND. There is so much to absorb regarding the dls positions i can't understand why one is focused on fixed income position. There are many places to put that fixed income money some with high yield and high risk and others lower yields and lower risks. Unless you put it into a CD with almost no yield there will be risk with fixed income positions.....drjoe
--- In ConservativeOptionStrategies@yahoogroups.com, fred barbour <barbour2p@...> wrote:
>
> Dr. Joe,
>
> Questions on BND because I have been looking for fairly safe places to park cash.
> 1.how long have you been using BND?
> 2.will you put your cash into something else if interest rates start to rise?
> Thanks
> Fred
>
>
>
>
> ________________________________
> From: joe & leigh <gass20@...>
> To: ConservativeOptionStrategies@yahoogroups.com
> Sent: Sun, May 16, 2010 2:18:20 PM
> Subject: [ConservativeOptionStrategies] DLS-PAPER TRADE #1
>
> Â
> 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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