Hello Everyone, I recently started using a little bit of leverage on my investments and I want to use a little more if I can safely insure it with puts. The plan is to buy about 100,000 dollars worth of shares in a company that pays a 20% dividend. I know that’s a lot and might not last forever, but I have evaluated the company and they can cover the dividend for now. Then I’m going to margin 50 percent, turning the 100,000 in to 200,000, and put a collar on it. I have looked at the option prices, and I should be able to use the premium from selling calls with a strike price of 10% above the current market price, to cover the cost of puts with a strike price of 20% below the current market price. By the way, the goal here is to collect the dividend and protect myself from a margin call. Nothing else. According to my calculations, the most I can lose is 40% of the initial 100,000 dollars. That means there would still be 60,000 dollars, and I shouldn’t get a margin call for a 30% margin req stock, because 60,000 is a third of 200,000. Am I right about how all this works? And is there any other risks here that I am missing?
So you're risking 40% to make 20%....sounds like a breakeven, at best, strategy. The future rarely goes exactly as you plan for it to go. If it was completely free money, risk free money, everyone would be doing it Claw of Bear