Covered Call Strategy...

I have a decent chunk of change that I am looking trade and generate 1-3% monthly gains with minimum risk and consistent monthly returns.

I have been working on a strategy where I will enter 20-30 covered call positions in large cap stocks and use part of the premium to buy puts on the OEX as a hedge.

This should result in steady monthly gains of a couple of pct as long as none of the positions has a dramatic decline that is not mirrored in the index (I have a way to minimize the chances of this from happening).

I am sure I am not the only one doing this, so please provide your comments and feedback so I can get another point of view. before I go live.

 

Selling naked puts achieves the same thing with half the commissions and slippage.

Your other concern, as you have pointed out, is the correlation.

 

How does that affect margin?
In CC the long stock is the collateral, what's the margin req when you short puts?
I use IB by the way.

 

The short put will require less capital. You're trading a common short dispersion strategy. Good luck.

 

You might find this helpful with regards to the attainable ROI + risk: Here is a link to a PDF describing a strategy that is similar to yours - Split strike conversion http://www.altrus.com/altrus/products/prod_195071/en/brochure.pdf

Good luck

 

This is just a collar, no?

 

THAT would be??????

 

I use chaos mathematics to measure when a stock has reached a point of extreme trendiness and it has about a 70% chance of halting the trend and reversing or stabililizing.

 

Could you do credit put spreads on each of the individual stock option positions (to limit the risk on any individual position) and use some of the proceeds to buy the index puts for portfolio protection - using near term options for the put credit spreads (to benefit from time decay) and buying longer term index puts (with much less time decay in them) for insurance against a market decline?

Or when it's all said and done, is there nothing to be gained, except by your broker?

 

i am implementing something akin to this--taking bullish positions via vertical put spreads and bearish positions (in different equities) via vertical call spreads. The idea is to be a consistent collector of option premium in a largely market neutral format.