Options strategy to return 6.5% annum with low risk.

What is riskier, covered calls or naked puts?

Why exactly are covered calls "safe"? Do the calls prevent stocks from dropping and taking losses?

Do the people who respectfully buy covered call ETFs understand how options work and can explain why covered calls are so "safe"

These are legitimate questions...
 
shMark said:
I am a beginner in options, and was wondering if the bull put spread, and iron condor are a good way to accomplish the above, or if there are better ways.

Also, I wonder how much time it takes.

At present, I use preferred stocks, and close end funds to get those returns, with almost zero risk.

Thanks in advance.
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- of course.. there are better ways
but you have to start from the textbook basic

- time and effort = skill and experience
this is an equivalent exchange

- which closed-end fund you are talking about?
zero risk? zero return?

:]
 
Not zero risk, but buying investment grade preferred stocks, or close end funds that buy bonds, can easily give you 6.5% with low risk. I have been doing this for many years, and never lost money doing this. Close end funds that buy bonds can give you 10%. Here are some close end funds that sell covered calls. boe, cii, eoi, eos, etj, etv. etw, ety, exg, igd, jsn, nfj.
 
El OchoCinco said:
What is riskier, covered calls or naked puts?

Why exactly are covered calls "safe"? Do the calls prevent stocks from dropping and taking losses?

Do the people who respectfully buy covered call ETFs understand how options work and can explain why covered calls are so "safe"

These are legitimate questions...
More...

For me, naked puts are more risky. Covered calls are safe, because if the stock goes down, you can buy back the call, and sell the stock. I don't think the people who buy the close end funds know a lot about options.
 
The point is a covered call is actually the same as a naked put, they are synthetic equivalents. So the risk is the same. I say that to make you better understand the risk. If the stock goes down you lose money, of course you can sell the stock and buy back the call but that doesn't make it safe. If you short the put and the stock goes down you can buy back the short put.

Just be careful as a beginner being told by other novices (the other people) something is safe when there is real risk. As a beginner you have to first learn how options work and what the risks are before really investing seriously.
 
El OchoCinco said:
The point is a covered call is actually the same as a naked put, they are synthetic equivalents. So the risk is the same. I say that to make you better understand the risk. If the stock goes down you lose money, of course you can sell the stock and buy back the call but that doesn't make it safe. If you short the put and the stock goes down you can buy back the short put.

Just be careful as a beginner being told by other novices (the other people) something is safe when there is real risk. As a beginner you have to first learn how options work and what the risks are before really investing seriously.
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to be honest, I have ways that I can make money in the market, that work, and options seem very complicated. With the exception of maybe buying a close end fund that sells covered calls, I may forgo them, and spend more time in the gym instead. The story of my interest came about because an acquaintance from high school, said he made tons of money with I think, bear call spreads, but as I asked him about it, he seemed to have forgotten how he did it. He had said, he made all this money, spending a few minutes per day. He was a professional investor of some sort at the time. The more I have researched this, the more complicated it seems. It almost seems you either need to be a professional investor, or to have a PhD in physics to succeed with them.
 
Well it is more complicated than stocks for sure but does not require a Phd or advanced math degree. Just extra effort initially in learning them. it is not for everyone.

But I would be very suspect of anyone who said he made a ton of money on something and then "forgot" how he did it or claimed it took minutes a day.
 
Well, I know this is a biased board, but given that I do very well in the bond, stock, and preferred stock markets, is it even worth my time to learn? Do people in options do much better than people in stocks, assuming they understand them?
 
nice to know that someone realizes even making 6% is CHALLENGING..

just for the heck of it.. look at this HYPOTHETICAL TRADE..

we all know what SPY can do.. BALLPARK returns..
2011 flat
2012 10%
2013 30%
2014 10%
2015 flat
2016 10%

so if you try to sell just one naked put 1 year out. may be u can come out with 6 %..

end of the 2017.. 155 put quarterly SPY.. .it is bid 72 ask 77.. say u get 75 cents.
Order Description,SELL -100 SPY 100 (Quarterlys) 29 DEC 17 155 PUT @.75 LMT [TO OPEN]
Break Even Stock Prices,154.25
Max Profit,"$7,500.00"
sell 100 of them.. it blocks for me.. - as i have Portfolio Margin in IB... only 30K.
will give me 7500. - commisson.say ~ 100 bucks. so i get 7400.

Assume for volatility.. i keep 100% margin. i keep 60K. and leave it till end of year
so i make 7/60K. ballpark.. 11.6%. till end of year.. 10 months

14%.. annualised.

NOW IF SPY DIPS BELOW 154.25 I AM TOAST!!!!!
BUT the question you need to ask yourself ( Clint EASTWOOD -DIRTY HARRY)
Do you feel lucky!..
DO U THINK SPY shouldnt go under 155.. till YEAR END..??
but WHO KNOWs...
i had a bad trade in AUG 2015... SPY moved from 210 to 182. in 4 trading days..
I know clearly as I traded thru that.
if u r holding such NAKED POSITIONS. u better have a STRONG HEART! and an EXIT PLAN..
PM leveraged naked PUTs. can make u NAKED very soon!!
 
darwin666 said:
nice to know that someone realizes even making 6% is CHALLENGING..

just for the heck of it.. look at this HYPOTHETICAL TRADE..

we all know what SPY can do.. BALLPARK returns..
2011 flat
2012 10%
2013 30%
2014 10%
2015 flat
2016 10%

so if you try to sell just one naked put 1 year out. may be u can come out with 6 %..

end of the 2017.. 155 put quarterly SPY.. .it is bid 72 ask 77.. say u get 75 cents.
Order Description,SELL -100 SPY 100 (Quarterlys) 29 DEC 17 155 PUT @.75 LMT [TO OPEN]
Break Even Stock Prices,154.25
Max Profit,"$7,500.00"
sell 100 of them.. it blocks for me.. - as i have Portfolio Margin in IB... only 30K.
will give me 7500. - commisson.say ~ 100 bucks. so i get 7400.

Assume for volatility.. i keep 100% margin. i keep 60K. and leave it till end of year
so i make 7/60K. ballpark.. 11.6%. till end of year.. 10 months

14%.. annualised.

NOW IF SPY DIPS BELOW 154.25 I AM TOAST!!!!!
BUT the question you need to ask yourself ( Clint EASTWOOD -DIRTY HARRY)
Do you feel lucky!..
DO U THINK SPY shouldnt go under 155.. till YEAR END..??
but WHO KNOWs...
i had a bad trade in AUG 2015... SPY moved from 210 to 182. in 4 trading days..
I know clearly as I traded thru that.
if u r holding such NAKED POSITIONS. u better have a STRONG HEART! and an EXIT PLAN..
PM leveraged naked PUTs. can make u NAKED very soon!!
More...



mofo- IB . exposure fee. i forgot.... its 4.29 each DAY.. so for 300 days.. u deduct -1200 bucks.. it should continously KEEP FALLING.. but GOD KNOWS!!!!!
so ur ROI is... 7400-1200 = 6200./60K. 10% in 10 months.. 12% ANNUALIZED


https://drive.google.com/open?id=0B7ws5fqZNeIlQmpTb3NMdzViM3M
 
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