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Covered calls
- Thread starter fogut
- Start date
A neutral to mildly bullish strategy is a good idea for a bear market? I don't think so. Buy and hold never does well in a bear, let alone in a Black Swan.Actually covered calls is a good strategy in a bear market for someone who wants to buy and hold. Plus volatility means higher premiums... You will outperform those fancy hedge funds.
As for outperforming those fancy hedge funds, given that the SPY was down about 35% last year, it would be a Pyrrhic victory to be down only 25-30% from doing CC's.
Quote from dagnyt:
Obviously that depends on how much higher the market moves. Down moves are good for you, so the amount of any decline doesn't matter..
On average, this strategy should be a loser, IMHO. There are always bull markets and you wold get hammered enough to offset your gains.
I'm sure you can backtest this method. Data is available.
Mark
2009 is looking to be a rangebound market and with savings account paying a pittance, Treasuries way overpriced. it seems like for 09 SPY and calls a point or more out would keep that money working, especially with this high fear factor contributing to higher than normal premiums.
Quote from spindr0:
A neutral to mildly bullish strategy is a good idea for a bear market? I don't think so. Buy and hold never does well in a bear, let alone in a Black Swan.
As for outperforming those fancy hedge funds, given that the SPY was down about 35% last year, it would be a Pyrrhic victory to be down only 25-30% from doing CC's.
Funny thing is everyone wants to buy only during the bull markets and sell everything and go to treasuries during the bear market periods. It is like people will only go shopping when there is a sign saying hey +50% price increase come and get it. For depriciating assets people rush to the store and buy goods when they see a sale. For appreciating assets, people run when they see a sale sign.
I bet when the dow was 12-14K everyone and their mother was trying to stick every cent they had in mutual funds.
If I was going to start investing I would not try to time bottoms but start putting your money to work.
Buying at tops is a foolish folly, and SPY is well diversified enough for someone starting out and to boost things a bit during this period some premiums will help out.
I think that it's at least "Everyone minus One" since I go bearish in a bear market. Chances are, there are a couple of others as well (g).Funny thing is everyone wants to buy only during the bull markets and sell everything and go to treasuries during the bear market periods.
There ya go again with that "Everyone" stuff...I bet when the dow was 12-14K everyone and their mother was trying to stick every cent they had in mutual funds.
I'd suggest that it's a much better idea to shift one's bias toward what the market is doing. When the news is good, be net long (perhaps the internet boom of the late 90's?). When the news is bad, be net short (perhaps the sub prime crisis of the past year and a half?). Yes, picking tops and bottoms is a foolish folly.. But going along for the ride between them isn't and that means both directions, up and down.If I was going to start investing I would not try to time bottoms but start putting your money to work.
By all means, if covered calls in bear market is your cup of tea, go for it. After all, it's your money. But don't try to sell that brew as a good strategy for a bear.