Managing Funds for a Living
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Just for reference...some Covered Call Investment Products:
Madison/Claymore Covered Call Fund (MCN),
www.madisonclaymore.com/
Dobson Covered Call Fund (DBCCX),
CBOE S&P 500 BuyWrite Index (ticker BXM),
And some quips from wikpedia, etc. -
"The naked put has the same risk/reward profile as a covered call."
This should not be surprising, because the covered call is just a synthetic way of creating a naked put. For this reason, stocks that make good covered call candidates also make good naked put candidates.
the risk of being assigned the stock...
Trade Risk: That stock price gaps down, resulting in assignment of falling stock; in that event trader must roll puts or be assigned
Time Decay: Rapid, since put is in last 30-60 days. Usually not economical to close trade unless stock advance lowers put premium
Alternatively, your broker may allow you to write the puts on margin, which is a loan from the brokerage firm. When writing on margin, you need not secure the entire risk amount but only an amount equal to the initial margin requirement. The initial margin required generally will be approximately 20% of the put strike. The minimum amount required is a more complex calculation than this, but there is little point working through examples, since every broker will apply its own margin requirement. Note that the initial margin is adjusted after the trade's open, and this adjusted amount is known as the maintenance margin. Margin increases as the stock declines, and decreases as the stock moves higher.
Too many traders and investors instinctively flinch at the idea of naked put writing. Yet the greatest risk (really a theoretical risk) is that the stock price goes to zero without a chance to exit the trade and mitigate damages. But isn't that the same risk the stock buyer undertakes? Unlike the naked call, which presents a risk that at least theoretically is unlimited, the maximum possible loss on a naked put is the amount of the put strike, and in my experience that very seldom occurs. There are examples like Enron or Delphi, but neither of them actually went to zero (but close), and neither made their entire drop in a single day. Both would have entailed loss to the naked put writer, no matter how quickly the trader closed - but traders and investors long the stock lost their shirts, too. You can't take risk out of trading, but there is no reason to exaggerate put writing risk in our own minds, either.
The truth is that the risk is really no worse than with just about any other trade. But be that as it may, brokers are more skittish about naked put trades than covered calls (which present a virtually identical risk profile), and require a higher account approval level for options trading.
Something to think about...PayS
Madison/Claymore Covered Call Fund (MCN),
www.madisonclaymore.com/
Dobson Covered Call Fund (DBCCX),
CBOE S&P 500 BuyWrite Index (ticker BXM),
And some quips from wikpedia, etc. -
"The naked put has the same risk/reward profile as a covered call."
This should not be surprising, because the covered call is just a synthetic way of creating a naked put. For this reason, stocks that make good covered call candidates also make good naked put candidates.
the risk of being assigned the stock...
Trade Risk: That stock price gaps down, resulting in assignment of falling stock; in that event trader must roll puts or be assigned
Time Decay: Rapid, since put is in last 30-60 days. Usually not economical to close trade unless stock advance lowers put premium
Alternatively, your broker may allow you to write the puts on margin, which is a loan from the brokerage firm. When writing on margin, you need not secure the entire risk amount but only an amount equal to the initial margin requirement. The initial margin required generally will be approximately 20% of the put strike. The minimum amount required is a more complex calculation than this, but there is little point working through examples, since every broker will apply its own margin requirement. Note that the initial margin is adjusted after the trade's open, and this adjusted amount is known as the maintenance margin. Margin increases as the stock declines, and decreases as the stock moves higher.
Too many traders and investors instinctively flinch at the idea of naked put writing. Yet the greatest risk (really a theoretical risk) is that the stock price goes to zero without a chance to exit the trade and mitigate damages. But isn't that the same risk the stock buyer undertakes? Unlike the naked call, which presents a risk that at least theoretically is unlimited, the maximum possible loss on a naked put is the amount of the put strike, and in my experience that very seldom occurs. There are examples like Enron or Delphi, but neither of them actually went to zero (but close), and neither made their entire drop in a single day. Both would have entailed loss to the naked put writer, no matter how quickly the trader closed - but traders and investors long the stock lost their shirts, too. You can't take risk out of trading, but there is no reason to exaggerate put writing risk in our own minds, either.
The truth is that the risk is really no worse than with just about any other trade. But be that as it may, brokers are more skittish about naked put trades than covered calls (which present a virtually identical risk profile), and require a higher account approval level for options trading.
Something to think about...PayS
Although we've been seemingly stuck discussing the merits of a short put strategy vs covered call. There are many bright points on this thread that support even higher annual returns.
Take the average 13.5 monthly trades I've made in my funds in 2007. Of these 2.4 were "unwound" to mitigate potential further losses. Granted many of these did find support and resumed trade above my stop point, but the lessons learned from previous corrections and Bear Market's - to know conserativism- will always pay off dearly.
The (approximate) 3% loss from these events mostly incur from having to buy the call back BEFORE I sold the stock is substantial. Going naked on the short call and selling the stock at my stop-loss target, I often can cover at a much lower price or simply let expire worthless.
Use of this simple approach is an easy improvement to my already heady annual average - is like low hanging fruit - to the tune of about a 25-50% increase to my average, year-over-year.
Also, when markets tank and I'm cashed out...the naked index puts are a simple and relatively safe 10-20% gain 1-3 times a year - capitalizing in tops. Compound that with the other returns and we are indeed relaxing quite well.
If substituting naked puts for covered calls does indeed provide a better way me me to do this...well we won't be around here for very long. Simply enter the sell order, place the stop order and away we go.
PayS
Take the average 13.5 monthly trades I've made in my funds in 2007. Of these 2.4 were "unwound" to mitigate potential further losses. Granted many of these did find support and resumed trade above my stop point, but the lessons learned from previous corrections and Bear Market's - to know conserativism- will always pay off dearly.
The (approximate) 3% loss from these events mostly incur from having to buy the call back BEFORE I sold the stock is substantial. Going naked on the short call and selling the stock at my stop-loss target, I often can cover at a much lower price or simply let expire worthless.
Use of this simple approach is an easy improvement to my already heady annual average - is like low hanging fruit - to the tune of about a 25-50% increase to my average, year-over-year.
Also, when markets tank and I'm cashed out...the naked index puts are a simple and relatively safe 10-20% gain 1-3 times a year - capitalizing in tops. Compound that with the other returns and we are indeed relaxing quite well.
If substituting naked puts for covered calls does indeed provide a better way me me to do this...well we won't be around here for very long. Simply enter the sell order, place the stop order and away we go.
PayS
Well folks, looks like the OP finally looked up the exact same info on wikipedia and decided to believe it this time.
In any case Paysense, I'm glad that you looked it up. It seems like you are starting to understand now.
In any case Paysense, I'm glad that you looked it up. It seems like you are starting to understand now.
I don't understand what you are saying is something to think about. Everything you just quoted from wikipedia we have been explaining to you on this thread for days now.
By the way, you might want to be careful in making statements to the effect that nobody else can successfully manage a covered call fund. There are countless covered call funds out there. Covered calls occupy a large amount of trading at many long only mutual funds. You should realize that the covered call is by far the most common options strategy in existence. Every investment advisor that I know recommends covered calls to their clients, and none of them know anything about options.
You made a comment the other day regarding the merits of using VIX and VXN to predict market movement. You should realize that it is both covered call writing and protective put buying (the other most popular strategy) that are causing the VIX to jump on market drops. Indeed these are the two most basic options strategies out there.
2CL...I'm still curious about how the use of the 'better' strategy bodes for my "stop-loss" methods.
I want to see for myself that the ATM stock - when it moves to my down to my stop (about a 5-7% drop),
that the ATM put and the ATM call (that go ITM and OTM, respectivley) gain and lose exactly in sync.
Also...what if any differences in these option move rates (relative to stock) are there for writes 1, 2, 3, 4, 5, and 6 weeks from expiration.
I still got the feeling that the put price once ITM will move higher than the call (now OTM) price drops.
Just more study on my part.GA
I want to see for myself that the ATM stock - when it moves to my down to my stop (about a 5-7% drop),
that the ATM put and the ATM call (that go ITM and OTM, respectivley) gain and lose exactly in sync.
Also...what if any differences in these option move rates (relative to stock) are there for writes 1, 2, 3, 4, 5, and 6 weeks from expiration.
I still got the feeling that the put price once ITM will move higher than the call (now OTM) price drops.
Just more study on my part.GA
...and you're making the incorrect assumption that Gil knows and understands the Greeks!
With regards to "Covered Call Funds". I don't doubt that the're likely computer-based programs at big firms that capitalize on covered calls that do quite well.
Perhaps there are persons that manage OPM very successfully with the strict use of writes. Like you say mutual funds use them but as a secondary or tertiary method.
I was referring to web-based covered call services that purport that great gains can be derived compounding these premiums. I haven't acutally seen it successfully done in this manner.
That being said...here's a blurb I drummed up that used to be a part of my site: (happy reading lol)
Introduction from the CEO:
Have you noticed the barrage of investment information in the Internet space that has bombarded individuals over the last few years? People will say and do anything to get a buck out of you. Have you also noticed how many investors think they know what they are doing - and how many are looking to make it big really quick?
Well let me tell you, we've been around a while and know what we are doing. In fact, our Hedge Fund Manager says he does what he does in his sleep! Yes...much info is available out there, but we only provide what you need - saving you time energy and a whole lot of grief in making your funds consistently and steadily HUGELY outperform.
You won't find what we know anywhere on the web. That is why we are set apart from the rest. WE KNOW HOW TO MINIMIZE LOSSES AND MAXIMIZE GAINS OVER TIME as we've been proving over and over. What good is it to try a whole bunch of different, risky strategies and end up 5 years later - right where you started with virtually no growth in your funds or worse yet, losses?
Yes, you may have learned a lot, but what you could've learned in a few months time at xxxxxxxxxxxxxxx would've been more expedient. Take us on and we will show you soon enough why our funds outperform (50% on average is nothing to snub at) over time.
Why any investor would leave without xxxxxxx up is mind-boggling to say the least!
Yours Truly,
Mr. xxxxxx Schmidt,
Chief Executive Officer
A Hedge Fund Manager's musings:
Let us compare the other sites and see why they seem to offer more but don't. A simple screen on Google using "covered calls" presents 78,000,000 listings. The top-listed ones are paid advertisers like ours, yet more than a few have sprung up over the last couple of years.
Let's see now...
stockmarketcashmachine.com: Using their conservative approach with covered calls (not with the more risky LEAPS) from what I see is that positions aren't closed until they are profitable. An average of 5-6 per month are closed (no telling how many are still open), yet I see some trades held for 152, 105 and 173 days. Investors do not have an unlimited supply of cash to tie up with unprofitable investments.
poweropt.com: Real-time screening tools for covered calls that help you "to find investments to meet your profit goals", yet you are left on your own to learn how to manage your account with any REAL success. We've found that success is not in finding that great return on that great stock at that great moment in time - but how to consistently move your funds AS A WHOLE over extended periods of time with a well-defined set of rules or investment parameters.
callwriter.com: Again all of the general "know-how" and some keen insight into some of the specifics and likely a good attempt to automate the management of your covered call position, yet I have not verified the usefulness of this calculating tool. Some back-testing would help to clarify.
optiongrid.com: Software that will help you to track your progress as you paper-trade with again your own setup of unproven investment parameters.
optionmonitor.com: (See poweropt.com)
ies-invest.com: Posts a 37% YTD return with an aggressive covered call portfolio, yet is very innacurate. I've redone their calculations and came up with 17%. There are glaring errors in their reporting and no e-mail to address these issues.
coveredcallweekly.com: Provides a somewhat nice approach, yet again the reported win/loss ratio in the new year is about 50%. I am not sure what other benefits for a prosperous financial future they have to offer.
compoundstockearnings.com: Seasoned experts and professionals let you know how great covered calls can POTENTIALLY be and charge you to tell you. A sparse few may learn from there on their own, but most will languish and after five years their accounts will show that they are no better off than they are now. Also they recently removed from their website a new attempt at publishing results from managing a REAL covered call fund.
allinthemoney.com: (See poweropt.com and optionmonitor.com)
wickedprofits.com: Seems to know a whole lot more than the others about the realities we are describing which is encouraging. What I see though is that in the year 2002 serious gains were made with their cumulative covered call picks to the tune of 96.57%. Frankly, I can't see how this was possible since, with the Nasdaq down 31.5%, it was a wicked year for covered call writer. Worse yet in 2000 when the Nasdaq was down 46%, a 132% return is posted! A look at our performance charts will show that performance highly correlates with the overall market.
optioninvestor.com: Since 2005 offer a Newsletter, Model Portfolio, Weekly Candidates (eerily the same names we use) - with no posted results or fund performance.
I CANNOT STRESS ENOUGH TO THE NEWBIE that knowledge and experience are two different things and KNOWLEDGE WITH EXPERIENCE is a powerful combo - YET KNOWLEDGE WITH EXPERIENCE WITH PROVEN RESULTS that you can easily verify for yourself IS WHERE THE MONEY IS AT!!
DON'T BE DUPED! Many of these websites are highly-rated and claim to have been around since the 1990's - BUT WILL NOT IMMEDIATELY IMPART TO YOU EXACTLY WHAT YOU NEED TO GROW YOUR ACCOUNTS 50% ON AVERAGE PER YEAR (with ease and simplicity) during the next 3-10 years and beyond!
...and of course further search listings that link you to your standard assortment of websites offer free educational seminars regarding option strategies and various online trading firms to setup your brokerage account.
And so...I will say like the rest "Start Your xxxxxxxxxx TODAY".
A bit more from the Muse:
You see...lots of sites can make pretty good money selling general info on how great covered calls can POTENTIALLY be. Although this is great news and many a novice may find the abundance of information worth the xxxxxxxxxxxxxxxxxx, in the end the actually result is most often NOT the attainment of a financial dream or goal. You will also find many forums and investment clubs where self-aggrandizing "experts" KNOW-IT-ALL and are so ready to tell you this. Perhaps you've gone and paid for a "feel-good" seminar where the hosts talk up the strategy and give a whole lot of "know-how" and make you think they are experts, which is actually just a bunch of general and often misleading info. They don't actually manage large accounts that grow significantly larger as the years go by. They are simply reaping hefty "one-time" costs for what is actually worthless, since you aren't going to learn how to achieve any significant end result!
BE SURE TO xxxxxx TODAY and don't learn anymore hard lessons. We don't do a lot of "I told you so's". You do the analysis and let us know. Yes, there are other investment strategies and some stocks and markets do move against us and other sites might claim to offer it all...but you will keep coming back for more. And if you've been burnt before, please give us a chance to show you how you can be empowered to manage like a pro.
I don't know about you, but do you know where our funds would be if we hung on to losers? WE LOOK FORWARD TO MARKETS THAT WRING OUT THE FROTH - after all, markets can't go up all the time. Our strategy is to get out and let them go down so we look like geniuses. We don't tie our capital up with innumerable positions that are laggards that may take months or even years to get back to profitability - that is why we are so skeptical of website that have postings of nothing but winners. They hold on to these as if they have an endless supply of investment capital - WHICH NO ONE HAS!
WE HAVE YET TO SEE ANY HEDGE FUND OUTPERFORM US so...well I am getting ahead of myself, but this is something for you to chew on. Naysayers abound and the "love of money is the root of all evil", but realizing your dreams is what we want for everyone. We know what you need and know what you want SO KEEP CHECKING US OUT - or better yet, xxxxxxxxx A MONTH for a few months. You might learn something you don't already know!
AND FINALLY...some final words of imparting wisdom. If truly you have a desire to secure financial prosperity and the dreams thereof, consider joining us. Make an honest appraisal of how you are to achieve this goal and put it into action. Only then will you be able to make it happen!
Yes, you may have a line on HOW TO MAKE A LARGER BUCK MUCH QUICKER! BUT, (here is the million dollar question): "How have you done during these same past years - AS A SUM TOTAL?"
The bottom line...NO ONE has mastered fund management like we do!
LEARN FROM US NOW and get the knowledge and experience to begin amassing this kind of wealth!
What do you have to lose? xxxxxx TODAY! You just might learn something new!
Best Regards,
Mr Gilbert J. Arevalo
President & Chief Hedge Fund Strategist
xxxxxxxxxxxxxxx Management
www.xxxxxxxxxxxxxx.com
This is simply a post to show what is out there regarding CC sites. I admit I don't know the industry many may have known. That is where I'm getting learned. Please note my url, etc. was removed in keeping with ET's poicy...and yes, it's (like most of my banterings) - obnoxious blather!
Perhaps there are persons that manage OPM very successfully with the strict use of writes. Like you say mutual funds use them but as a secondary or tertiary method.
I was referring to web-based covered call services that purport that great gains can be derived compounding these premiums. I haven't acutally seen it successfully done in this manner.
That being said...here's a blurb I drummed up that used to be a part of my site: (happy reading lol)
Introduction from the CEO:
Have you noticed the barrage of investment information in the Internet space that has bombarded individuals over the last few years? People will say and do anything to get a buck out of you. Have you also noticed how many investors think they know what they are doing - and how many are looking to make it big really quick?
Well let me tell you, we've been around a while and know what we are doing. In fact, our Hedge Fund Manager says he does what he does in his sleep! Yes...much info is available out there, but we only provide what you need - saving you time energy and a whole lot of grief in making your funds consistently and steadily HUGELY outperform.
You won't find what we know anywhere on the web. That is why we are set apart from the rest. WE KNOW HOW TO MINIMIZE LOSSES AND MAXIMIZE GAINS OVER TIME as we've been proving over and over. What good is it to try a whole bunch of different, risky strategies and end up 5 years later - right where you started with virtually no growth in your funds or worse yet, losses?
Yes, you may have learned a lot, but what you could've learned in a few months time at xxxxxxxxxxxxxxx would've been more expedient. Take us on and we will show you soon enough why our funds outperform (50% on average is nothing to snub at) over time.
Why any investor would leave without xxxxxxx up is mind-boggling to say the least!
Yours Truly,
Mr. xxxxxx Schmidt,
Chief Executive Officer
A Hedge Fund Manager's musings:
Let us compare the other sites and see why they seem to offer more but don't. A simple screen on Google using "covered calls" presents 78,000,000 listings. The top-listed ones are paid advertisers like ours, yet more than a few have sprung up over the last couple of years.
Let's see now...
stockmarketcashmachine.com: Using their conservative approach with covered calls (not with the more risky LEAPS) from what I see is that positions aren't closed until they are profitable. An average of 5-6 per month are closed (no telling how many are still open), yet I see some trades held for 152, 105 and 173 days. Investors do not have an unlimited supply of cash to tie up with unprofitable investments.
poweropt.com: Real-time screening tools for covered calls that help you "to find investments to meet your profit goals", yet you are left on your own to learn how to manage your account with any REAL success. We've found that success is not in finding that great return on that great stock at that great moment in time - but how to consistently move your funds AS A WHOLE over extended periods of time with a well-defined set of rules or investment parameters.
callwriter.com: Again all of the general "know-how" and some keen insight into some of the specifics and likely a good attempt to automate the management of your covered call position, yet I have not verified the usefulness of this calculating tool. Some back-testing would help to clarify.
optiongrid.com: Software that will help you to track your progress as you paper-trade with again your own setup of unproven investment parameters.
optionmonitor.com: (See poweropt.com)
ies-invest.com: Posts a 37% YTD return with an aggressive covered call portfolio, yet is very innacurate. I've redone their calculations and came up with 17%. There are glaring errors in their reporting and no e-mail to address these issues.
coveredcallweekly.com: Provides a somewhat nice approach, yet again the reported win/loss ratio in the new year is about 50%. I am not sure what other benefits for a prosperous financial future they have to offer.
compoundstockearnings.com: Seasoned experts and professionals let you know how great covered calls can POTENTIALLY be and charge you to tell you. A sparse few may learn from there on their own, but most will languish and after five years their accounts will show that they are no better off than they are now. Also they recently removed from their website a new attempt at publishing results from managing a REAL covered call fund.
allinthemoney.com: (See poweropt.com and optionmonitor.com)
wickedprofits.com: Seems to know a whole lot more than the others about the realities we are describing which is encouraging. What I see though is that in the year 2002 serious gains were made with their cumulative covered call picks to the tune of 96.57%. Frankly, I can't see how this was possible since, with the Nasdaq down 31.5%, it was a wicked year for covered call writer. Worse yet in 2000 when the Nasdaq was down 46%, a 132% return is posted! A look at our performance charts will show that performance highly correlates with the overall market.
optioninvestor.com: Since 2005 offer a Newsletter, Model Portfolio, Weekly Candidates (eerily the same names we use) - with no posted results or fund performance.
I CANNOT STRESS ENOUGH TO THE NEWBIE that knowledge and experience are two different things and KNOWLEDGE WITH EXPERIENCE is a powerful combo - YET KNOWLEDGE WITH EXPERIENCE WITH PROVEN RESULTS that you can easily verify for yourself IS WHERE THE MONEY IS AT!!
DON'T BE DUPED! Many of these websites are highly-rated and claim to have been around since the 1990's - BUT WILL NOT IMMEDIATELY IMPART TO YOU EXACTLY WHAT YOU NEED TO GROW YOUR ACCOUNTS 50% ON AVERAGE PER YEAR (with ease and simplicity) during the next 3-10 years and beyond!
...and of course further search listings that link you to your standard assortment of websites offer free educational seminars regarding option strategies and various online trading firms to setup your brokerage account.
And so...I will say like the rest "Start Your xxxxxxxxxx TODAY".
A bit more from the Muse:
You see...lots of sites can make pretty good money selling general info on how great covered calls can POTENTIALLY be. Although this is great news and many a novice may find the abundance of information worth the xxxxxxxxxxxxxxxxxx, in the end the actually result is most often NOT the attainment of a financial dream or goal. You will also find many forums and investment clubs where self-aggrandizing "experts" KNOW-IT-ALL and are so ready to tell you this. Perhaps you've gone and paid for a "feel-good" seminar where the hosts talk up the strategy and give a whole lot of "know-how" and make you think they are experts, which is actually just a bunch of general and often misleading info. They don't actually manage large accounts that grow significantly larger as the years go by. They are simply reaping hefty "one-time" costs for what is actually worthless, since you aren't going to learn how to achieve any significant end result!
BE SURE TO xxxxxx TODAY and don't learn anymore hard lessons. We don't do a lot of "I told you so's". You do the analysis and let us know. Yes, there are other investment strategies and some stocks and markets do move against us and other sites might claim to offer it all...but you will keep coming back for more. And if you've been burnt before, please give us a chance to show you how you can be empowered to manage like a pro.
I don't know about you, but do you know where our funds would be if we hung on to losers? WE LOOK FORWARD TO MARKETS THAT WRING OUT THE FROTH - after all, markets can't go up all the time. Our strategy is to get out and let them go down so we look like geniuses. We don't tie our capital up with innumerable positions that are laggards that may take months or even years to get back to profitability - that is why we are so skeptical of website that have postings of nothing but winners. They hold on to these as if they have an endless supply of investment capital - WHICH NO ONE HAS!
WE HAVE YET TO SEE ANY HEDGE FUND OUTPERFORM US so...well I am getting ahead of myself, but this is something for you to chew on. Naysayers abound and the "love of money is the root of all evil", but realizing your dreams is what we want for everyone. We know what you need and know what you want SO KEEP CHECKING US OUT - or better yet, xxxxxxxxx A MONTH for a few months. You might learn something you don't already know!
AND FINALLY...some final words of imparting wisdom. If truly you have a desire to secure financial prosperity and the dreams thereof, consider joining us. Make an honest appraisal of how you are to achieve this goal and put it into action. Only then will you be able to make it happen!
Yes, you may have a line on HOW TO MAKE A LARGER BUCK MUCH QUICKER! BUT, (here is the million dollar question): "How have you done during these same past years - AS A SUM TOTAL?"
The bottom line...NO ONE has mastered fund management like we do!
LEARN FROM US NOW and get the knowledge and experience to begin amassing this kind of wealth!
What do you have to lose? xxxxxx TODAY! You just might learn something new!
Best Regards,
Mr Gilbert J. Arevalo
President & Chief Hedge Fund Strategist
xxxxxxxxxxxxxxx Management
www.xxxxxxxxxxxxxx.com
This is simply a post to show what is out there regarding CC sites. I admit I don't know the industry many may have known. That is where I'm getting learned. Please note my url, etc. was removed in keeping with ET's poicy...and yes, it's (like most of my banterings) - obnoxious blather!
Well Gil, you're a good sport, so I'll concede two things:
1) It is possible to make money in options without understanding the Greeks- I've seen it done (but not often).
2) What you lack in basic knowledge, you seem to make up with decent instincts. This:
...is exactly what I expect to see happen next week.
1) It is possible to make money in options without understanding the Greeks- I've seen it done (but not often).
2) What you lack in basic knowledge, you seem to make up with decent instincts. This:
...is exactly what I expect to see happen next week.
- Status