Options Traders: Making High Cash Balances Work for Us

[arizonadreamer]

Quote from darwin666:

hi arizonadreamer,

I also keep looking for ways to make undeployed cash work for us.

last OCTOBER , I learnt that even the safest deep ITM covered call , is not exactly safe.

If you say 3-5%. its like 0.35% a month

Now if you look at any options screener for lot of SOLID stellar stocks/ETFs we could easily pick such low hanging fruit. Infact much more. sometimes when we look at it, deploying 10K and getting 50$ after commissions doesnot look too enticing. for 2-3 weeks.. but it works out to 6% APY.

but as you said, if we, already have some major options positions in the same SECTOR , that would not be wise, as we have learnt. what can go wrong , usually does..
RISK Management. RISK Management, RISK Management...

So the very fact that we want 3-5% APY. and not settle for the 1% Money market, does introduce more risk on us.

Very good point Darwin. Risk management. Survival. Survival of the fittest. Hence Darwin.

Sometimes it might be easier and more prudent to make an extra .25% (That's POINT 25%) on the primary options strategy than to risk a big drawdown in a "safe" income generating instrument.

In addition to ETF ITM calls or collars, I am considering short-term bonds - diversifying of course. This is not my area of expertise, so I will have to due extra DD on these.

AZD

 

[spindr0]

Hey Pizza Boy

This probably won't help you but my game plan has been to just trade away and keep pulling cash out of my account as I make it and put it in those one star FDIC insured banks that pay the highest rates (circa 3%)

Coincidentally, I was E-mail chatting about your dilemma with someone here a few weeks ago. She indicated that she had been legging into short term SPY conversions in order to achieve a yield better than IB's decimal leading rate.

Of interest to me was that one was put on for a small debit but it captured the .35% dividend... so you have to be aware of this situation when calculating possible returns.

I have no info to add since I'm too busy trading. If they ever settle the market down (bailout, stimulus, recovery, etc.) and things get back to normal, perhaps I'll have the time for YOU to show me where the good conversions are

Spin

 

[arizonadreamer]

Quote from spindr0:

Hey Pizza Boy

This probably won't help you but my game plan has been to just trade away and keep pulling cash out of my account as I make it and put it in those one star FDIC insured banks that pay the highest rates (circa 3%)

Coincidentally, I was E-mail chatting about your dilemma with someone here a few weeks ago. She indicated that she had been legging into short term SPY conversions in order to achieve a yield better than IB's decimal leading rate.

Of interest to me was that one was put on for a small debit but it captured the .35% dividend... so you have to be aware of this situation when calculating possible returns.

I have no info to add since I'm too busy trading. If they ever settle the market down (bailout, stimulus, recovery, etc.) and things get back to normal, perhaps I'll have the time for YOU to show me where the good conversions are

Spin

Spin,

As always, your "crumbs" of wisdom are appreciated.

As for conversions - I've never been able to pull one off. Especially those reverse conversions. I've seen them hanging there like low fruit, but because I couldn't short the stock (not talking about SPY), I couldn't do the conversion. Kudos to your friend for being able to execute.

The thing with any attempt at "souping up" yield is that any drawdown (even 1 or 2%) is significant - it would be better to just trade, trade, trade and earn .xx.

We can all find high-yielding stocks, ETFs . . . but if they are volatile, it doesn't matter. What good is earning 6 - 12% if the underlying drops 15 - 30%? :eek:

On the other hand, if we are good stock, ETF pickers, finding one that has a high-yield and will appreciate would be ideal. There are tons of high-yielders out there! Unfortunately, I'm better at picking strawberries than said instruments.

Oh the good ol' days when we could earn 5%+ . . .

AZD

 

[spindr0]

AZD,

Yes, there are plenty of high yielding stocks out there. And I totally agree that risk of owning them in this environment is too high for the yield... and probably in any environment since I'm just not a believer in bogus buy and hold bill of goods that has been sold to the public. How many 201K plans were created last year with that mentality?

In my early days of trading, I used to leg into conversions but it was mainly because I couldn't pull the string and take my losses quickly on bad trades. To wit, I'd day trade an optionable news stock and if I got a ittle behind, I'd sell an ITM CC (or put, if short). Rack up a few too many of those on the open position list and then out of fear, maybe start adding the OTM put (or call) to lock positions in overnight so that the open couldn't hurt me. Then segue to trading the components intraday. It was really a bad case of breakevenitis. Now, if it's a bad trade, I cut the loss quickly and if it's not a regular trading vehicle, delete the symbol and look for the next trade. There's nothing to be gained from woulda, coulda, shoulda.

After that (still several years ago), I spent some time looking for conversions and reversals. I set up some spreadsheets that did the calcs and I found that there was no free lunch. What you call low hanging fruit was only a mirage due to the pricing distortions that occur when stock isn't borrowable. It was too much work for too little return.

Back to the present... One thing my E-mail chatter mentioned was that in recent weeks, the conversions were harder to come by and she was looking at reversals. I don't know what her subsequent results were. nor do I know if the ability to find good SPY (or other index conv/rev's) is a transient event.

As for me, it just isn't worth the hassle at this point because 2 basis pts a day is essentially 5% a year. So IMHO, it just makes more sense to focus on trading for another $21 per day per 100g to make that 5% and forget about chasing conversions or yield. It's too much work when there's so much opportunuity elsewhere.

and that's my two percent... errrrr, two cents

 

[arizonadreamer]

Quote from spindr0:

AZD,

Yes, there are plenty of high yielding stocks out there. And I totally agree that risk of owning them in this environment is too high for the yield... and probably in any environment since I'm just not a believer in bogus buy and hold bill of goods that has been sold to the public. How many 201K plans were created last year with that mentality?

In my early days of trading, I used to leg into conversions but it was mainly because I couldn't pull the string and take my losses quickly on bad trades. To wit, I'd day trade an optionable news stock and if I got a ittle behind, I'd sell an ITM CC (or put, if short). Rack up a few too many of those on the open position list and then out of fear, maybe start adding the OTM put (or call) to lock positions in overnight so that the open couldn't hurt me. Then segue to trading the components intraday. It was really a bad case of breakevenitis. Now, if it's a bad trade, I cut the loss quickly and if it's not a regular trading vehicle, delete the symbol and look for the next trade. There's nothing to be gained from woulda, coulda, shoulda.

After that (still several years ago), I spent some time looking for conversions and reversals. I set up some spreadsheets that did the calcs and I found that there was no free lunch. What you call low hanging fruit was only a mirage due to the pricing distortions that occur when stock isn't borrowable. It was too much work for too little return.

Back to the present... One thing my E-mail chatter mentioned was that in recent weeks, the conversions were harder to come by and she was looking at reversals. I don't know what her subsequent results were. nor do I know if the ability to find good SPY (or other index conv/rev's) is a transient event.

As for me, it just isn't worth the hassle at this point because 2 basis pts a day is essentially 5% a year. So IMHO, it just makes more sense to focus on trading for another $21 per day per 100g to make that 5% and forget about chasing conversions or yield. It's too much work when there's so much opportunuity elsewhere.

and that's my two percent... errrrr, two cents

Spin,


$21 per day. That's an excellent spin, ummm, perspective on things. It just does not make sense to go for that extra $21 in an equally risky manner (with unsafe high-yielders.) I'm still working on this strategy . . .

AZD