Unfortunately, the link you gave to the file is a temporary one issued by Yahoo. Try this one instead:
Dr Joe I used the forum a bit early this year and dropped it. I have matured a lot since then and know a lot more. Not enough, but a lot more. Over this last year, anyone with an ounce of brains could be sucessful in options. I worry about the next few years. Your conservative approach takes a lot less time than my more aggressive approach, can I maintain the discipline!? I notice that you prudently always plan to roll out I did not see a plan to roll up but rather a plan to STC on the leaps to cover the stock going up in value and hurting you on the short calls. Since, due to gamma, as the stock goes up, the delta of the leap goes up, you could roll all the leaps to a higher leap, reap some additional premium and use that to cover the purchase of the SC and/or reduce your overall investment. Is there a reason why you chose to not do so? I fear this concept is beyond a lot of your readers and might even be dangerous. My basic understanding of using leaps for premium collection is write, write, write and roll, roll roll!!!.. I am fortunate in that I do not need a lot of income and I now have a number of positions that have 10 leaps with deltas greater than 0.75 and positive investment. I both roll up and out. I hate the 2 year leaps because of the spread and low open interest -- one easily gives up 20%. Perhaps not so much on the ones you use, but on the ones I play -- AXP, ABX, etc, its ugly! So I am sorta forced to be a 10 to 15 month guy. I guess it becomes more of a calendar spread than a leap spread, but Schwab is now letting me do those in an IRA. Thanks John |
I warn the newbies to not dive into DLS. i was eager to make the easy money, got involved back in 2007 and lost a BUNCH. I cut corners, as i did not have the $100,000 account dr joe says you need. nevertheless, i believe that everybody who traded this by the rules (and is still around) is still under water...
My covered call strategy is no doubt a lot simpler than most. many a "mantra" I take from IBD like: "The safest place to be during a market downtrend is in cash."
My stop methods got me cashed out before the big 21-day drop (http://tinyurl.
G
--- In ConservativeOptionS
>
> That's an approximately 15% annual return with no losing month in a
> three-year period. I'm impressed. It was the worst of all markets during
> that time, too.
>
>
>
> M
>
>
>
> _____
>
> From: ConservativeOptionS
> [mailto:ConservativeOptionS
> leigh
> Sent: Monday, November 30, 2009 10:37 AM
> To: ConservativeOptionS
> Subject: [ConservativeOption
> !!
>
>
>
>
>
> $299,000
>
> --- In ConservativeOptionS
> <mailto:Conservativ
> trategies@yahoogrou
> >
> > Can you estimate what the $xxx cost was for the leaps? If it was $100,000,
> > you did tremendously well. If it was $1 million, it was not profitable –
> > although still much better than "the market."
> >
> >
> >
> > M
> >
> > _____
> >
> > From: ConservativeOptionS
> <mailto:Conservativ
> trategies@yahoogrou
> > [mailto:Conservativ
> <mailto:Conservativ
> trategies@yahoogrou
> > leigh
> > Sent: Monday, November 30, 2009 3:54 AM
> > To: ConservativeOptionS
> <mailto:Conservativ
> trategies@yahoogrou
> > Subject: [ConservativeOption
> Again
> > !!
> >
> >
> >
> >
> >
> > M. just like the rental analogy. if you own a home that you rent out how
> > often do you get it appraised? i bought $xxx of leaps (my home to rent)
> and
> > it generated for me during the 39 months of these particular leaps a
> maximum
> > of 12,000 one month and during the worst of the market collapse i was able
> > to always generate at least $1000 a month. average over the 39 months
> ended
> > up as of last month $3000 a month. my leaps are down about 25% which is
> less
> > than the market. drjoe
> >
> > --- In ConservativeOptionS
> > <mailto:Conservativ
> > trategies@yahoogrou <mailto:trategies%
> at DCM" <research@> wrote:
> > >
> > > Dr. Joe,
> > >
> > >
> > >
> > > Can you share what your results have been? i.e. X% average annual return
> > > for last Y years with the worst monthly loss being Z%?
> > >
> > >
> > >
> > > I'd just like to understand what is possible and what expectations are
> > > reasonable.
> > >
> > >
> > >
> > > Thanks,
> > >
> > >
> > >
> > > M
> > >
> > >
> > >
> > >
> > >
> > > _____
> > >
> > > From: ConservativeOptionS
> > <mailto:Conservativ
> > trategies@yahoogrou <mailto:trategies%
> > > [mailto:Conservativ
> > <mailto:Conservativ
> > trategies@yahoogrou <mailto:trategies%
> Of joe &
> > > leigh
> > > Sent: Sunday, November 29, 2009 2:20 PM
> > > To: ConservativeOptionS
> > <mailto:Conservativ
> > trategies@yahoogrou <mailto:trategies%
> > > Subject: [ConservativeOption
> > Again
> > > !!
> > >
> > >
> > >
> > >
> > >
> > > jd....my strategy only uses leaps with at least 0.8 delta and even
> > > higher...drjoe
> > >
> > > --- In ConservativeOptionS
> > > <mailto:Conservativ
> > > trategies@yahoogrou <mailto:trategies%
> > Hudgens <jdhudgens2000@
> > > >
> > > > personally, I have completely revised my leaps straegy. I now use a
> > > stock replacement leap. To wit: I only buy leaps which have a delta
> > > greater than .75. If the stock goes up, my leap grows faster than the
> > > short term option and I can afford to buy it back if I have to by either
> > > using cash or rolling the leap up to get cash. If I don't sell a short
> > > term option and the stock goes up, I can harvest cash by rolling the
> > > option. Â
> > > > Â
> > > > You can buy a $40 stock's stock replacement for less than a third and
> > then
> > > make your rent on that. 50 cent on $10 is acceptable while 50 cent on
> $40
> > > isn't.
> > > > Â
> > > > Also, a stock replacement leap tends to be rollable out and up much
> > > easier than the less expensive ones.Â
> > > >
> > > > --- On Sun, 11/29/09, bgupta92@ <bgupta92@> wrote:
> > > >
> > > >
> > > > From: bgupta92@ <bgupta92@>
> > > > Subject: Re: [ConservativeOption
> > > Again !!
> > > > To: ConservativeOptionS
> > > <mailto:Conservativ
> > > trategies@yahoogrou <mailto:trategies%
> > > > Date: Sunday, November 29, 2009, 10:09 AM
> > > >
> > > >
> > > > Â
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Mark,
> > > > Â
> > > > I'm sure Dr. Joe will give you the same advice (at least I hope so).
> You
> > > want to sell calls at the strike that has the maximum extrinsic value.
> > > Usually that is the first strike ITM or OTM. Also you want to sell fewer
> > > calls than you have long calls. His thumb rule is about 8:10 - so about
> 8
> > > short calls for 10 long calls. Look at that on a P/L graph and you will
> > see
> > > what he means by uncovered longs. The graph will typically increase at a
> > > steep (relative) rate up to the short strike and then flatter but still
> > > increase at a shallower rate above the short strike.
> > > > Â
> > > > Once both the short and the long are ITM your profit comes from 2
> areas.
> >
> > > > Â
> > > > First it comes from the decay in the extrinsic value of the short
> being
> > > greater than the decay in the extrinsic value of the long - which is why
> > you
> > > want to sell the short that has the maximum extrinsic value.
> > > > Â
> > > > Second it comes from having more intrinsic value in the longs but only
> > > because you have more longs than shorts. If for example you had the same
> > > number of shorts as you have longs, the gain on the intrinsic of the
> long
> > > will be exactly offset by the loss on the intrinsic of the short. If
> > instead
> > > you have 10 longs and 8 shorts and the underlying moved by $1, the longs
> > > would gain $10 on the intrisic portion but the short position would lose
> > $8
> > > for a net gain of $2 on the intrinsic.
> > > > Â
> > > > If the underlying was below the short strike (i.e. the short strike
> was
> > > OTM), for every $1 movement of the underlying, the longs would gain $10
> on
> > > the intrinsic (same example as above) and a little bit on the extrinsic.
> > > since the short strike is OTM there is no gain/loss on the intrinsic but
> > of
> > > course there is a gain on the extrinsic. Overall, it is the gain on the
> > > intrinsic of the long that is the significant contribution to your
> overall
> > > P/L which is why the P/L is steeper below the short strike andÂ
> shallower
> > > above the short strike.Â
> > > > Â
> > > > Hope this helps....
> > > > Â
> > > >
> > > > ----- Original Message -----
> > > > From: "mark bluhm" <mbluhm2001@
> > > > To: ConservativeOptionS trategies@ yahoogroups. com
> > > > Sent: Sunday, November 29, 2009 11:56:54 AM GMT -05:00 US/Canada
> Eastern
> > > > Subject: Re: [ConservativeOption Strategies] Let's Get the Site Active
> > > Again !!
> > > >
> > > > Â
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Dr. Joe,
> > > >
> > > >
> > > > I'm sure we are all in the same boat with the LEAPs underwater, i know
> > am.
> > > Â I guess that i've messed up in that i've been too afraid to sell
> options
> > > uncovered and therefore have not been getting the income you have been.
> Â
> > > Would it be possible to share how you pick the strike price to sell your
> > > options and when you decide each month to do so? That would be very
> > helpful.
> > > Â
> > > >
> > > >
> > > > I have purchased new 2011 Leaps when the market was low but still own
> > the
> > > OTM 2010 Leaps. I'm thinking of sell these for a big loss instead of
> > holding
> > > on to them to expire while the market is up. Â Any thoughts on what to
> do
> > > with the 2010 OTM leaps?
> > > >
> > > >
> > > > Glad you are back. I'm still liking this system even though the market
> > has
> > > crashed. Â It still has a lot of merit.
> > > >
> > > >
> > > > Thanks,
> > > > Mark
> > > >
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > From: joe & leigh <gass20@>
> > > > To: ConservativeOptionS trategies@ yahoogroups. com
> > > > Sent: Sun, November 29, 2009 7:27:26 AM
> > > > Subject: [ConservativeOption Strategies] Let's Get the Site Active
> Again
> > > !!
> > > >
> > > > Â
> > > >
> > > > Would love for members to post their strategies and post questions for
> > > other members.
> > > >
> > > > I am still trading the DLS and am satisfied considering the worst
> market
> > > correction in decades. I am trading a lot of naked puts and covered
> calls.
> > > >
> > > > Someone who bought a second home (condo) in a place like Florida at
> the
> > > high of the real estate market to rent and generate income....his
> condo's
> > > market value is probably 40% below his purchase price. I know, I live
> > there.
> > > However, he is still able to generate monthly rent comparable to when
> the
> > > real estate market was high while he waits for his condo's value to
> return
> > > to purchase price.
> > > >
> > > > Well my leaps (condo) are well below cost basis. However, my current
> > leap
> > > positions opened 39 months ago has generated about $3000/mo.(rent i
> > > generated). Initially, leaps were generating 8-10k per month and during
> > the
> > > correction I was able to generate at least 1-1.5k per month...averaging
> > over
> > > the time period the $3000/mo. My leaps are about the same % below
> purchase
> > > price than if I had bought a portfolio of buy and hold. The difference
> is
> > I
> > > have generated $118,000 in premiums over the 39 months. Where the buy
> and
> > > hold owner generated no rent/income.
> > > >
> > > > I am finding that selling puts if managed well is easier and less time
> > > consuming than the DLS strategy.
> > > >
> > > > dr joe
> > > >
> > >
> >
>
Here it is: the file to study first is how hard was that? --- On Mon, 11/30/09, John Hudgens <jdhudgens2000@
|
suggest you tell the newbies how to find the files, it isn't easy --- On Mon, 11/30/09, Walter Smith <lsmith921@sbcglobal
|
lee, i do hope people read...read.
--- In ConservativeOptionS
>
> On the long-awaited return of Dr. Joe to posting here, I have three comments:
> Â
> 1. Dr. Joe - great to hear you again - we missed ya bigtime
> Â
> 2. all newbies to this site: for heaven's sake, go to the Files of this Group, download the DLS strategy files, and read/study them for as long as it takes (days, not minutes) for you to "get it" BEFORE you start pelting Dr. Joe with 100,000 inane questions that require him to repeat what you should have read and digested on your own.Â
> Â
> 3. Dr. Joe - I hope you will insist on #2 above being followed: just say "Read the Files". If you try to reanswer all the questions that are going to come as newbies try to catch up, your fingers will bleed from typing and you will waste your valuable post time. We have just been through a "generational event" with the '08 crash, and your time is best spent relating how how navigated that crash and the '09 recovery.
> Â
> IHMO,
> Lee Smith
>
> --- On Sun, 11/29/09, joe & leigh <gass20@...> wrote:
>
>
> From: joe & leigh <gass20@...>
> Subject: [ConservativeOption
> To: ConservativeOptionS
> Date: Sunday, November 29, 2009, 6:21 AM
>
>
> Â
>
>
>
> eric.....i use a ratio somewhere between 6:10...that allows the uncovered leaps to more than compensate for an radically
> increase in the underlying price.. this should have read 6-9:10 ratio sc/leap drjoe
>
> --- In ConservativeOptionS trategies@ yahoogroups. com, "joe & leigh" <gass20@> wrote:
> >
> > well eric...you didn't read my explanation of the DLS strategy with very much interest. i explained that is a problem and my strategy addresses that issue. my strategy is not a pure diagonal spread you read about in textbooks... ..i never set up a dls position that doesn't allow me to make money even if the underlying increases 1000%....my strategy eliminates the upside risk.....please read the paper again.....i do not trade 1:1 ratio of short calls to long calls which carries the risk mcmillan addresses... ...i use a ratio somewhere between 6:10...that allows the uncovered leaps to more than compensate for an radically increase in the underlying price....the only risk with the strategy is downside but that risk is less than buy and hold or covered call......please read the paper more carefully... .dr joe
> >
> > --- In ConservativeOptionS trategies@ yahoogroups. com, "heikeeric" <eric_friedman@ > wrote:
> > >
> > > I read with interest Dr. Joe's explanation of the DLS strategy. I am wondering what group members with experience using this strategy would say in response to the cautionary notes I found in Lawrence McMillan's Options as a Strategic Investment. I apologize for posting such a lengthy excerpt, but it seems relevant and I would like to know what the group has to say about McMillan's analysis.
> > >
> > > McMillan writes: "Many traders are fond of buying LEAPs and selling an out-of-the-money near-term call as a hedge. Be careful about doing this. If the underling common rises too fast and/or interest rates fall and/or volatility decreases, this could be a poor strategy. There is really nothing quite as psychologically damaging as being right about the stock, but being in the wrong option strategy and therefore losing money. Consider the above examples [buy XYZ LEAP @ 100; sell XYZ near-term call @ 110]. Ostensibly the spreader was bullish on XYZ; that's why he chose bull spreads. If XYZ became a wildly bullish stock and rose from 100 to 180 in three months, the diagonal spreader would have lost money. He couldn't have been happy -- no one would be. This is something to keep in mind when diagonalizing a LEAPS spread.
> > >
> > > The deltas of the options involved int he spread will give one a good clue as to how it is going to perform. Recall that a short-term, in-the-money option acquires a rather high delta, especially as expiration draws nigh. However, an in-the-money LEAPS call will _not_ have an extremely high delta, because of the vast amount of time remaining. Thus, one is short an option with a high delta and long an option with a smaller delta. These deltas indicate that one is going to lose money if the underlying stock rises in price. Consider the following situation:
> > >
> > > [table showing XYZ @ 120. Long 1 Jan LEAP @ 100, with a delta of 0.70. Short 1 April 110 call with a delta of -0.90.]
> > >
> > > At this point if XYZ rises in price by 1 point, the spread can be expected to lose 20 cents, since the delta of the short option is 0.20 greater than the delta of the long option.
> > >
> > > This phenomenon has ramifications for the diagonal spreader of LEAPS. If the two strike prices of the spread are too close together, it may actually be possible to construct a bull spread that _loses_ money on the upside. That would be very difficult for most traders to accept. In the above example, as depicted in table 25-4, that's what happens. One way around this is to widen the strike prices out so that there is at least some profit potential, even if the stock rises dramatically. That may be difficult to do and still be able to sell the short-term option for any meaningful amount of premium.
> > >
> > > Note that a diagonal spread could even be considered as a substitute for a covered write in some special cases. It was shown that a LEAPS call can sometimes be used as a substitute for the common stock, with the investor placing the difference between athe cost of a LEAPS call and the cost of the stock in the bank (or in T-bills). Suppose that an investor is a covered writer, buying stock and selling relatively short-term calls against it. If that investor were to make a LEAPS call substitution for his stock, he would then hav ea diagonal bull spread. Such a diagonal spread would probably have less risk than the one described above, since the investor presumably chose the LEAPS substitution because it was "cheap." [I think he means because LEAPS are cheaper due to low volatility and low interest rates] Still, the potential pitfalls of the diagonal bull spread would apply to this situation as well. Thus if one is a covered writer, this does not
> necessarily mean that he can substitute LEAPS calls for the long stock without taking care. The resulting position may not resemble a covered write as much as he thought it would.
> > >
> > > The bottom line is that if one pays a debit greater than the difference in the strike prices, he may eventually lose money if the stock rises far enough to virtually eliminate the time premium of both options. This comes into play also if one rolls his options _down_ if the underlying stock declines. Eventually, by doing so, he may _invert_ the strikes -- i.e. the striking price of the written option is lower than the striking price of the option that is owned. In _that_ case, he will have locked in a loss if the overall _credit_ he has received is less than the difference in the strikes -- a quite likely event. So, for those who think this strategy is akin to a guaranteed profit, think again. It most certainly is not."
> > >
> >
>
