long term investment idea??

Discussion in 'Options' started by noob_trad3r, Sep 25, 2009.

  1. I was thinking what if I go long lets say SPY then write OTM calls on it (1month) then save the premium but reinvest premium on spy on any dips. keep writing OTMs etc.. and compounding. will this work okay?
     
  2. 1) It would work "best" in a sideways to slightly-uptrending market.
    2) It would work "so-so" in a strongly uptrending market.
    3) It would work "badly" in a strong bear market. You wouldn't be able to write premiums quickly enough to make up for capital losses on the underlying stock. It would be better than just a passive buy & hold. :cool:
     
  3. Will you consider selling naked SPY puts every month ?
     
  4. would that be better. It is similar to a covered call it looks like. but using cash as the collateral.
     
  5. Your brokerage firm should let you do covered-call writing. It puts nearly all of the financial risk on you, not them. Naked-put writing becomes risky for your firm if you can't cover an account deficit. :cool:
     
  6. IT could work, write calls with a strike price 5-10% over current price

    Reinvest premiums on dips
    Reinvest dividends.

    If you do not care about bear markets and looking towards a long horizon I do not see why this would not perform better than the straight S&P

    There is a BXM index but they write ATM calls which increases the chance of assignment and I do not think they reinvest proceeds.
     
  7. Will it work okay? How do you think this concept would have performed last year?

    I'd suggest this DCA technique only for the long term buy and hold investor who's in it for the long haul. looking to accumulate a position and willing to ride "in" the bear markets. Definitely not for traders or the money management consciious.
     
  8. I am assuming he is looking at this as a long term investor. Would still have performed better than just someone holding SPY due to the call premiums.
     
  9. mrwoody

    mrwoody

    Does it make sense to have also some stops @ (stock value - premium) to avoid big losses? I guess that this way the loss is just about 1/2 of the premium. Is that right?
     
  10. it makes sense to make money. If stops help you do that then it's a good thing.
     
    #10     Sep 27, 2009