Gyroscopic Investing

After reading many posts of other's ways of handling their own VP, I decided I would post a little about my own.

I have been tracking my VP in a blog, which can be found here, http://strangleprofits.blogspot.com.

I try to post every weekend but sometimes, I may miss a week. I am due to put up another post by the end of this weekend.

The basic strategy is selling "naked" puts, calls, and strangles WAY OTM on various positions and collecting the time premium. I shot for 2-3%/mo in returns on the margin.

GLTA

Interesting.

How do you pick the underlying stock? 

How do you determine if you're going to sell a call or a put?

AdamA wrote: Interesting.

How do you pick the underlying stock? 

How do you determine if you're going to sell a call or a put?

As far as pick the positions, I wrote about that here, http://strangleprofits.blogspot.com/201 ... iting.html. I am trying to trade more indexes and less individual equities these days. I hate the volatility of earnings reports.

I wrote a little about picking strikes here, http://strangleprofits.blogspot.com/201 ... wered.html. Call or Put, I am trying to be as far OTM as possible based on my analysis for each position and whether entering Puts or Calls or both depends on the return, where can I best use my margin.

Hi Engineer,

what is the % of your VP? 10-20%?

Regards

That is an easy one to answer but takes a little explaining.

1) All of my retirement money, stuff I can't touch until I am older, is in PP. All income generated here stays in the accounts.

2) I have an amount equal to that rolling in the VP presented in the blog. Although towards the end of last year, I used a bunch of my available cash trying to get more out of my VP. This year, I am setting out to be more disciplined and not risk that extra cash.

3) Currently, I again have an equal amount, sometime more/less, sitting in cash. For me, cash is a buffer if my main investment has issues. It also allows me to be nibble with my main investment. Finally, it carries my household through tough times, etc.

4) For my main investment, I have about 8x my PP tied up in real estate, specifically, single family rental homes, which generates my daily income and hopefully excess to continue to grow my wealth. I liquidated everything about 2yrs ago and went all in on SF Homes, buying junk, cheap, renovating back to new and then renting. The concept is to generate current income and then 3-5yrs from now sell and double or more the investment. We renovated 20 last year and all are rented. Will do 12 more this year then see where I sit.

All in all, not a significant amount in my PP but that is money I don't want much variability with and it is growing slowly. If everything blows up, I will still have it when I am older.

mmaurice wrote:

AdamA wrote: Interesting.

How do you pick the underlying stock? 

How do you determine if you're going to sell a call or a put?

As far as pick the positions, I wrote about that here, http://strangleprofits.blogspot.com/201 ... iting.html. I am trying to trade more indexes and less individual equities these days. I hate the volatility of earnings reports.

I wrote a little about picking strikes here, http://strangleprofits.blogspot.com/201 ... wered.html. Call or Put, I am trying to be as far OTM as possible based on my analysis for each position and whether entering Puts or Calls or both depends on the return, where can I best use my margin.

How long have you been doing this?

I have been trading this way for about a year.

There are many others out there blogging about similar trading styles. I think the difference between all of us is how we pick our strikes and exit strategies. I am probably more conservative with regards to both.

mmaurice wrote: The basic strategy is selling "naked" puts, calls, and strangles WAY OTM on various positions and collecting the time premium. I shot for 2-3%/mo in returns on the margin.

I'm a fan of bull put spreads myself.  The only problem with going "naked" is the huge fat tail risk and margin requirements.  And the lack of ability to collect significant premium vs risk.

mmaurice wrote: I have been trading this way for about a year.

There are many others out there blogging about similar trading styles. I think the difference between all of us is how we pick our strikes and exit strategies. I am probably more conservative with regards to both.

How do you think your strategy would do during a market crash?

I used to sell cash secured puts (slightly OTM and 90ish days to expiration) on strong dividend stocks making about 2% a month. Which to me is a very similar strategy to the naked way OTM options.

I think both have a similar risk that can be summed up with this phrase:

"It is like picking up pennies, in front of a bulldozer."

Basically everything is awesome, until you get destroyed by a single stock going bad.

Bean wrote: I used to sell cash secured puts (slightly OTM and 90ish days to expiration) on strong dividend stocks making about 2% a month. Which to me is a very similar strategy to the naked way OTM options.

I think both have a similar risk that can be summed up with this phrase:

"It is like picking up pennies, in front of a bulldozer."

Basically everything is awesome, until you get destroyed by a single stock going bad.

This happened to a couple of friends of mine doing leveraged covered calls in 07/08.  This is when I learned to appreciate the term "risk", and is thus why I've chosen to stick with the PP.  I forget the exact %age that they lost, but they were lucky they are young and had fairly small portfolios at the time; else, the loss would have probably been catastrophic.  Granted, they probably would have been a bit more diversified with more money on the table.  Either way, it makes me sick just thinking about it, and I didn't even have any money in the game.

The world is littered with traders and funds that have made a killing selling options.  It works very well........ until it doesn't.

IMO, the gap is what you have to be worried about. Going to bed with everything being happy, waking up and shit has hit the fan.

I try to stay WAY outside the historic largest gap and then control the rest with an exit strategy that is agressively tight.

Finally, stay away from positions that could be impacted by huge news in the coarse of the day (penny stocks, one-hit wonders, etc).

Its not perfect, but the risks are minimal.

mmaurice wrote:
I try to stay WAY outside the historic largest gap and then control the rest with an exit strategy that is agressively tight.

In a panic situation, though, these stops are not guaranteed.

mmaurice wrote: IMO, the gap is what you have to be worried about. Going to bed with everything being happy, waking up and shit has hit the fan.

I try to stay WAY outside the historic largest gap and then control the rest with an exit strategy that is agressively tight.

Finally, stay away from positions that could be impacted by huge news in the coarse of the day (penny stocks, one-hit wonders, etc).

Its not perfect, but the risks are minimal.

You trade based on Technical Analysis?

Rgds