Quitting day job to collect weekly premiums - realistic?

[Stymie]

What if I buy BAC Jan 18 calls strike $30 for $0.69 per share instead? I can use the cash secured fund to buy 30 yr treasury and the interest will be $0.755 per share equivalent for a net credit of $0.0065 per share. So, net credit and unlimited upside? The risk? Bond devalues due to interest rate going up, but in such case, BAC income will go up and stock price will go up with it, so the calls will be profitable.

What am I missing?

You need to do a pay off chart which shows you how much you make or lose across the price levels. Your breakeven is going to be $30. My breakeven is $20 and my max profit is $30. So my max profit is Your break even. You would have to be extremely bullish. The option market lets you sell upside that you don't want or your profit level so take advantage of it. I'm happy taking profits at $30. If you buy the 30 call, then decide what profit you want and sell that strike at the same time. My opinion is interest rates are too low.

 

[ironchef]

Stymie,

Any comments?

 

[Llxa]

Hi All

Suppose you have a working capital of about 800k. Now you do weekly cash secured puts on stocks you are confident to own if assigned, and if assigned sell calls until the stocks are called away. Of course this only works if the market does not crash like in 2000, 2008, etc. Is it realistic to think this can become a primary source of income?

Building on this, what is the equivalent strategy in a total bear market for the above? I don't want to sell any call spreads.

Thanks for your help.

What if the stock starts tanking as soon as you owned it and tanked so much that there are no calls that you can write that will allow you to sell the stock at a profit in case if it gets called away and in the mean time you are stuck with a tanking stock?

Yes living off collecting premiums can be done but you have to be very very careful with the strategy. It's almost like a high-wire act.

 

[Pekelo]

Yes living off collecting premiums can be done but you have to be very very careful with the strategy.

aka, it can not be done.

 

[Llxa]

aka, it can not be done.

Yes, it CAN be done but 1) you need LOTS LOTS of money like at least $200K since the guy says he's starting with $800K working capital so that requirement is satisfied and 2) you just have to consider ALL scenarios of what can happen to the underlying and its consequences on your investment capital and tailor your options strategies accordingly and that's the high-wire act that I was talking about.

 

[Sig]

Yes, it CAN be done but 1) you need LOTS LOTS of money like at least $200K since the guy says he's starting with $800K working capital so that requirement is satisfied and 2) you just have to consider ALL scenarios of what can happen to the underlying and its consequences on your investment capital and tailor your options strategies accordingly and that's the high-wire act that I was talking about.

$200K, seriously? What do you plan to live at the poverty level or reliably return 50-75% returns year after year?

 

[lawrence-lugar]

aka, it can not be done.

That's such a linear, close-minded perspective;
Trading the market...is neither necessarily a constant Success or Failure -- one or the other.

It's kind of a constant dance, or art -- or skill
If you're searching for a sure/safe thing...then the marketplace is definitely not your playground,

That's the beauty of the market ...it's filled with emotion and mystery, atleast in the shorter run time frame, it is.
Much more complex then any painting.

 

[Pekelo]

That's such a linear, close-minded perspective;

Let's bring out the big guns, the numbers. The previous poster quoted a 800K account size. Well, with such an account a 10% return can give you a decent living. Now most traders don't have a close to million account size, thus achieving the same relative dollar value they have to have a 30-50-whatever% return.

Obviously making 10% is way easier than making 50%...

 

[Sig]

Let's bring out the big guns, the numbers. The previous poster quoted a 800K account size. Well, with such an account a 10% return can give you a decent living. Now most traders don't have a close to million account size, thus achieving the same relative dollar value they have to have a 30-50-whatever% return.

Obviously making 10% is way easier than making 50%...

I guess a decent living is relative, most people who've made $800K and are still well short of regular retirement aren't the the kind of people who consider $80K a year a decent living. And 10% is 5 times the risk free rate. You need to take on 5x the risk to make that or assume that there is systemic, long term mispricing of options. There's a pretty massive amount of hubris in that assumption.

 

[Llxa]

$200K, seriously? What do you plan to live at the poverty level or reliably return 50-75% returns year after year?

Maybe for you guys in the states, an income level below $100K a year is below the poverty line now?? LOL In Canada, you are gonna have a pretty comfortable life if you make $50K a year SINGLE, no kids. With 2 kids, $70K to $80K a year should do it. You can't make that much money a year on a $200K working capital doing weeklies??

How much money are you all pulling in doing weeklies? LOL