January 21st, 2012
A colleague and I have been testing a new options system which consists, in various ways, of buying a far out leap, and selling 30 day options against it
every month for 12 or more months. He claims that unless one is wipsawed with extensive volatility, the strategy should produce over
20% a year return. He is testing it with a number of stocks.
I am testing it with Bank America stock. So I bought 10 of the January 2013 puts with a strike price of $5, paying about $700, and sold the February 6,
2012 put and took in $165.
If I could take in $165 even 10 times a year (instead of 12) for $1,650, at a cost of $700, that would be a pretty good deal. If I am put the stock at
any point in time, I will take it and sell an at-the-money call for new premium income. Hopefully at that point the stock will thereafter be called away
and I can start the put writing process again.
Stay tuned for later developments!
Merv
Posted in Trade of the week | No Comments »
January 15th, 2012
Nice song title. Also an important part of option writing.
One of the worst performing stocks I bought in 2011 was TEVA. But it’s been a good source of call premium income, and now has started to move up toward my purchase price. Of $45.
I have been holding the March 42.50 calls for which I received $1,300 when I sold the calls.
Last week the stock went over 42.50. I decided not to let it be called away.
So I bought back the March 42.50 calls and paid $2,765. At the same time I sold the June 45 calls and took in $2,275.
In other words, I gave back $500 in cash of the original premium I received in order to move up 2 ½ points (or $2,500 on my 1000 shares). From a tax point of view I have a loss ($2,765 less $1,300) so far. If the stock doesn’t go over $45 in the next six months I will still have a profit on the options.
That doesn’t look likely with the stock now at $44.50 and the market looking hot. But if the stock goes to $45,which was my cost, I can let it be called away, and come out ahead from the option premiums.
My point is that by writing calls against my stocks, I sometimes make a profit even if I picked a dog.
mlh
Posted in Trade of the week | No Comments »
January 15th, 2012
| Index |
Close |
Net Change |
% Change |
YTD |
YTD % |
| DJIA |
12,422.06 |
+62.14 |
0.50 |
+204.50 |
1.67 |
| NASDAQ |
2,710.67 |
+36.45 |
1.36 |
+105.52 |
4.05 |
| S&P500 |
1,289.09 |
+11.28 |
0.88 |
+31.49 |
2.50 |
| Russell 2000 |
764.20 |
+14.49 |
1.93 |
+23.28 |
3.14 |
| International |
1,415.22 |
+8.51 |
0.61 |
+2.68 |
0.19 |
| 10-year bond |
1.85% |
-0.11% |
|
-0.02% |
|
| 30-year T-bond |
2.90% |
-0.12% |
|
+0.01% |
|
|
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.
More market data
Market Wrap
U.S. equities continued their quiet rally into the second week of the new year, with the Dow industrials edging up 0.50%, the S&P 500 up 0.88%, and the technology-rich Nasdaq gaining 1.36%. The small-cap Russell 2000 fared even better, up 1.93% as traders bet on the prospects of more robust economic growth ahead. Even foreign stocks joined in the upward move, although new storm clouds in the euro zone kept the gains on the tentative side. Bond yields plunged as nervous traders piled back into the relative haven of Treasury debt. For more on recent trading activity, please read:
http://money.cnn.com/2012/01/13/markets/markets_newyork/index.htm?iid=HP_LN
French Debt Rating Cut As Markets Expected
Standard & Poor’s confirmed months of speculation on Friday by announcing that France no longer merits the prestigious AAA rating on its debt. The development heralds just how far the euro crisis has moved, from the relatively small markets of the periphery to the continent’s second-biggest economy. With the likelihood of other downgrades on the horizon, S&P says that at least Germany is safe. For more on the latest from the euro zone and what it may mean for investors, please read:
http://www.msnbc.msn.com
Federal Reserve Mulls Additional Economic Stimulus
Central bank watchers pointed out this week that the Federal Reserve’s interest rate panel is losing three of its most hawkish or inflation-wary voters, which could in turn tip the balance in favor of more economic stimulus programs ahead. Recent statements from the Fed indicate a lack of conviction in the health of the U.S. economy, especially if the euro situation worsens. As such, new support may be back on the bargaining table as soon as the next rate policy meeting. For more, please read:
http://www.cnbc.com/id/45977098
|
Posted in Westside Investment Weekly Update | No Comments »
January 9th, 2012
| Index |
Close |
Net Change |
% Change |
YTD |
YTD % |
| DJIA |
12,359.92 |
+142.36 |
1.17 |
+142.36 |
1.17 |
| NASDAQ |
2,674.22 |
+69.07 |
2.65 |
+69.07 |
2.65 |
| S&P500 |
1,277.81 |
+20.21 |
1.61 |
+20.21 |
1.61 |
| Russell 2000 |
749.71 |
+8.79 |
1.19 |
+8.79 |
1.19 |
| International |
1,406.71 |
-5.84 |
-0.41 |
-5.83 |
-0.41 |
| 10-year bond |
1.96% |
+0.09% |
|
+0.09% |
|
| 30-year T-bond |
3.02% |
+0.13% |
|
+0.13% |
|
|
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.
More market data
Market Wrap
U.S. stocks got the year off to a bullish start as the traditional “January Effect” led investors off the sidelines and into financial markets. The somewhat battered Nasdaq was the week’s biggest winner, up 2.65%, while the blue-chip Dow industrials opened 2012 with a 1.17% gain. The broad S&P 500 and small-cap Russell 2000 gained 1.61% and 1.19%, respectively. Foreign shares suffered on the euro’s continued weakness, leaving the MSCI EAFE down 0.41% in dollar terms. Bond prices opened the year under pressure, pushing Treasury yields upward in response. For more on recent trading activity, please read:
http://finance.yahoo.com
U.S. Unemployment Falls To Near-Three-Year Low
American businesses hired another 200,000 people in December, driving the broad unemployment rate down to 8.5%. Analysts viewed the news as a definite step in the right direction for many people who have either been out of work or simply depressed at the state of the labor market. And even the battered construction industry has started hiring again. Is this the start of the boom that many economists have predicted, or simply business as usual for the nation? For perspectives, please read:
http://money.cnn.com/2012/01/06/news/economy/jobs_report_unemployment/index.htm?
iid=HP_LN
Small Businesses Are Leading The Way
Last week’s data reports painted a much healthier picture of the job market than many investors have seen in years. The primary driver of all that good news has been small and medium-sized businesses, which cut their staffing to nearly zero in the 2008 credit crunch and are now hiring again. As the pace of new business formation picks up, this could become a trend. For more on the dynamics behind the new job market, please read:
http://bottomline.msnbc.msn.com
|
Posted in Westside Investment Weekly Update | No Comments »
January 2nd, 2012
| Index |
Close |
Net Change |
% Change |
YTD |
YTD % |
| DJIA |
12,217.56 |
-76.44 |
-0.62 |
+640.05 |
5.53 |
| NASDAQ |
2,605.15 |
-13.49 |
-0.52 |
-47.72 |
-1.80 |
| S&P500 |
1,257.60 |
-7.73 |
-0.61 |
-0.04 |
-0.00 |
| Russell 2000 |
740.92 |
-6.47 |
-0.87 |
-42.73 |
-5.45 |
| International |
1,412.54 |
+10.95 |
0.78 |
-245.75 |
-14.82 |
| 10-year bond |
1.87% |
-0.16% |
|
-1.42% |
|
| 30-year T-bond |
2.89% |
-0.17% |
|
-1.44% |
|
|
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.
More market data
Market Wrap
The last trading week of 2011 ended with U.S. stock markets giving up some ground, but performance was sharply mixed for the full year. The Dow industrials shed 0.62 percent closing 2011 with a 5.53% gain,and the S&P 500 shed 0.61% over the week, closing 2011 with 0.00% gain. The technology-heavy Nasdaq drifted down 0.52% for the week and ends the year with a 1.80% loss, while the economically sensitive Russell 2000 fell 0.87% for the week and a cumulative 5.45% for the entirety of 2011. Foreign shares rebounded slightly in dollar terms, up 0.78% for the week, but Europe’s woes still pushed the MSCI EAFE down 14.82% for the year. Treasury bonds remained an investment of choice, with long-term yields plunging over both the week and the year. For more on recent trading activity, please read:
http://www.cnbc.com/id/45824871
Treasury Bonds Bask In Their Best Year Since The Credit Crisis
Yields on U.S. government securities fell to record lows this year as the sovereign debt situation in Europe worsened. Over the last 12 months, 30-year Treasury bonds have returned a stunning 35%, more than in any rolling period since the 2008 credit crisis sent global investors fleeing to the Treasury market. While few analysts expect a repeat performance in 2012, the results demonstrate that the U.S. government remains a preferred haven for risk-wary capital around the world. For more, please read:
http://www.bloomberg.com
Will 2012 Be Another Year Of Pain For The Euro?
The U.S. dollar defied inflation fears and the summer’s Treasury credit downgrade last year, remaining the world’s safe haven of choice. As 2012 looms, some economists see even worse news ahead for the euro zone, which might give the greenback even more support among currency traders. For many, the question is now not so much whether Europe will avoid a recession but how bad it will be — and whether the currently resilient U.S. economy will weather the storm. For more, please read:
http://money.cnn.com
|
Posted in Westside Investment Weekly Update | No Comments »