How much do you have to know?

[The Big D]

Also note that I'm talking about dividend paying stocks because that's what the thread is about, not SPY. The OP makes that pretty clear. So once again the reading comprehension thing is an issue. If we were talking about SPY with its greater options liquidity, obviously my comments would have been different.

 

[Soon2Bgreat]

NM

 

[syrre]

Quote from The Big D:

Other than that, it's good for a few extra points of return per year for a dividend portfolio with essentially no risk.

There is no 'extra points' without no 'extra' risk.

You could almost rather say:
It is good for essentially no extra points with just some extra risk.

 

[The Big D]

Quote from syrre:

There is no 'extra points' without no 'extra' risk.

You could almost rather say:
It is good for essentially no extra points with just some extra risk.

I would agree with you. I do think you quoted the wrong person though - I've been arguing the bonds have interest rate risk. CL has been arguing they don't.

Incidentally, given that he discusses his backtest over the last 25 years, and bonds have been in what amounts to a 30 year continual bull market, that's a little disingenuous since we've reached the end of the bull market. We're at zero yield - the ride's over.

 

[Cache Landing]

Quote from The Big D:

The thing I don't like about your approach is that it has a portfolio beta of 1 in all crashes (actually slightly less due to the 10y notes, but that's quibbling).

My approach will typically have a beta of about .6, and that will decrease towards zero in crashes since value investments de-couple from the indexes in the later stages of a crash.

We're not solving the same problem here. My strategy is inherently conservative. Yours less so.

Agreed, but that is exactly my point. If Joe Sixpack is diversified, he also has a beta of near 1. I'm not saying this is the best strat out there. In fact, having covered calls as part of the strat automatically disqualifies it from being the best strat, IMO.

Also, keep in mind that long treasuries is a hedge against a crash.

 

[Cache Landing]

Quote from The Big D:

I will also point out that if you're repeatedly buying and selling the 10y notes, your claim about the long term mitigating the interest rate risk is even less true. You will have realized gains and losses due to rates.

Just as a general comment though, the long term doesn't eliminate rate risk, it creates it.

No, the point is that over the long term the paper gains and losses due to rate risk will be a wash. Leaving only the yield to consider.

Remember that we are essentially talking about a very long term buy and hold. You would only ever be out of the position for 1/2 day occasionally. Rate risk is not a concern.

 

[Cache Landing]

Quote from The Big D:

Also note that I'm talking about dividend paying stocks because that's what the thread is about, not SPY. The OP makes that pretty clear. So once again the reading comprehension thing is an issue. If we were talking about SPY with its greater options liquidity, obviously my comments would have been different.

SPY pays dividends quarterly. Those dividends are priced into the naked puts.

 

[Cache Landing]

Quote from The Big D:

Incidentally, given that he discusses his backtest over the last 25 years, and bonds have been in what amounts to a 30 year continual bull market, that's a little disingenuous since we've reached the end of the bull market. We're at zero yield - the ride's over.

I never said I performed a 25 year backtest during the ideal period. Again, you need to take your own reading comprehension advice. You stated that long 10Y notes is a losing strat right now. I used that period as an example of how over the long term these rate fluctuations will be a wash. Sometimes it works in your favor and sometimes against, but long term it doesn't matter. It's all about the yield, which contrary to your statement, is not at zero, it is currently 3.5%.