Therefore this has got to be remembered... MARK HULBERT The bullish best Commentary: Dow's drop doesn't faze the top performers By Mark Hulbert, MarketWatch Last Update: 12:01 AM ET Jun 8, 2007 ANNANDALE, Va. (MarketWatch) -- The number of points that the Dow Jones Industrial Average has lost over the last three trading sessions is almost identical to what it shed on Feb. 27, when the "Shanghai Surprise" led to a 416-point drop in a single session. And, just as was the case then, the recent pullback has led many to announce that the bull market had come to an end. As we now know, of course, reports three months ago of the bull market's demise were not just premature, they were plain wrong. From the close on Feb. 27 to the market's high earliest this week, the Dow e ($INDU : Dow Jones Industrial Average News , chart , profile , more Last: 13,266.73-198.94-1.48% 4:30pm 06/07/2007 $INDU13,266.73, -198.94, -1.5%) gained 12%. This outcome was not a surprise to those who followed the lead of the top performing market timing newsletters. As I reported after the market closed on Feb. 27, each of the five newsletters which at that time had the best 10-year market-timing records was bullish on the stock market, notwithstanding that day's 416-point drop. See Feb. 27 column What are they saying now? For this column I took a look at each of the five newsletters that I referred to in my column then. Not surprisingly, given how correct their forecasts have turned out to be, they remain at the top of the rankings for 10-year, risk-adjusted market timing performance. Each of these top five remains bullish, as you can see from the following summary, which lists these them in alphabetical order: The Blue Chip Investor: Editor Steven Check currently is allocating about 84% of his model stock portfolio to equities. Though that is lower than where this portfolio's equity allocation stood in late February, Check's market timing model continues to be on a buy signal. In fact, according to Check's market valuation model, stocks were not overvalued even before the market's recent correction. Bob Brinker's Marketimer: Editor Bob Brinker, in his latest issue, dated June 5, says that he believes that there is "no risk" of a bear market occurring this year (defined as a decline in the Standard & Poor's 500 index (SPX : S&P 500 Index News , chart , profile , more Last: 1,490.72-26.66-1.76% 1:17am 06/08/2007 SPX1,490.72, -26.66, -1.8%) of more than 20%). His model stock portfolios remain fully invested. The Chartist and The Chartist Mutual Fund Letter: Dan Sullivan, editor of both of these services, remains bullish on the stock market. Writing Thursday night, Sullivan argued that a pullback in the market should not have been a surprise, since one had been long overdue. In fact, he says that he expects the market to somewhat more before an "effective bottom" can be reached. The model portfolios in both letters remain close to being fully invested. Timer Digest: Editor Jim Schmidt bases this newsletter's market timing model on a consensus of the newsletters he calculates to be the top market timers. As of Wednesday night, his consensus of the top 10 based on performance over the past 52 weeks was bullish, with eight bulls, one bear, and one neutral. His consensus of the top 10 for performance over the past two years was also bullish, with all 10 letters bullish. The bottom line? All five of these top performers are bullish. Only one of them has a lower recommended equity allocation today than then, and even so, it is only slightly lower. The other four remain just as bullish today as in late February. To be sure, anything is possible in the stock market. But, on the theory that the best long-term performers are more likely than not to be right, their bullishness in the face of this week's decline has to be a source of some solace right now.
If dividend is increased; Call values rise Put values fall Stock value isn't effected You sold the calls so an increase in price is bad, but you own the stock so you'll get compensated. You sold the puts so in decrease in price is good. PUT/CALL PARITY
Paysense.... this guy should be your mentor.. http://www.elitetrader.com/vb/showthread.php?threadid=96322
Cache; puts rise, calls [and spot] fall into a rising dividend. The synthetic shares will fall equal to the natural shares. Furthermore, the net increase [loss] on the short put from the dividend will equal the loss on the spot/call combo. It's the result of moving capital off the balance sheet and reducing market cap.
I don't think you're understanding. Maybe someone else can explain it. IF YOU KEEP THE LOT SIZE THE SAME, the naked put has the same risk profile as the covered call. They lose/make money at the same rates. If under a certain scenario you would be break even on the covered call, you would also be break even on the naked put at the same strike. They are equivalent. There is no more risk in selling a naked put than in the covered call at the same strike. The difference comes in commissions and buying power. It's true that commissions aren't the biggest factor, but the buying power factor is huge. It has to do with margin requirements. As I stated in my example above, the naked put version only uses about 33% of the buying power than the covered call version uses, even though they are the same position. You are then free to use 66% of your money in chasing fixed income returns in money market at zero added risk. This is free money. The only time anyone gets in trouble with this is when they don't use the same lot size. Instead they think that they should use the same buying power, which results in 3X larger naked put position. This of course equates with 3X risk. Anyway, I think you get the point. In regards to making interest on "only" 50% of $1MM. That's a free $25,000 annually. Show me a person who wouldn't take $25K for nothing.
Sorry, I typed it up quick. I might've reversed what I was trying to say. In any case, the point was synthetic equivalence. But you stated it much more eloquently than me.
Should've reviewed what I wrote before I submitted. The whole explanation is getting tiresome. I wish every option trader would read natenburg at least before discussing strategy.
I am not dumb and I am not a hardhead. I may not even get around to reading Natenberg. What I do know...it seems can still be done - perhaps more efficiently per your (and others') advice. I'll eventually see exactly what you are saying...so no worries, we got time. The market is in disarray, technically bereft especially the spx. Where do we go from here? (Most) all support for this vehement bull leg is gone. Personally, I feel institutional favorites AAPL, GOOG, RIMM and AMZN are next to get hit. For now naked puts are making money each passing day. The bounce today is interestingly coupled with a high volume surge of NYSE volume. Nasdaq volume is falling well short. For me, these are the tell-tale signs to follow. As for the rest...I'll have to google to get this terminology for certain. I'm sure lot size is equal option sells. Perhaps in time my view of benefits with what I do will prove to have some merit...but for now, CL we're not seeing the same thing. How do you get and why do you use those "...ROI..." postings? Tell me what isn't a benefit to this line a managing risk: If I buy a $50 stock with the specific intent to sell the call to immediately receive in my account an OTM premium of $2.50. I'm happy to recieve this and any stock appreciation up til expiration. If somehow the stock goes down to $47.50 - with the type of issues I manage that need losses to me minimized, I will buy the call back at close to $0.00 and sell the stock or incur about a 2-4% overall loss (x comm) since the option may still have some time premium to decay. If I sell (same lot - JUL 55) the put at $7.50 what happens to this put option price with the lower $47.50 stock price? Quite likely to take a 30%+ drop in price. But you are right. Same lot size has same impact to portfolio loss. But what about the hedge from premium received by the CC writer. Why wouldn't this be considered a hedging factor - hence the term "covered" call?? Please answer this too: If you averaged $500,000 in returns on 1M compounded for 5-10 years (actually in exess of this since an account this size may grant some liberties that significantly add up). Is $25,000 (2.5% annually) a factor? I know you don't turn away free money, but I don't think much about interest and dividends. Again is $25,000 a factor. Yes and no. Consider this and scenario below. No because this figure is an added 2.5% that may not be worth the risk of 66.6% less buying power. Remember short call premium has to be a factor. For an example of what would indeed be an added benefit: With a larger account, when a stock falls to my stop target I'd like for my broker to automatically sell the stock at $47.50. I'll mostly be fine with him letting me go naked on the short call. I can buy this back later or let it expire worthless. For me, this averages about a 3% mitigation from each stopped position and I do have my share - maybe 35% of positons entered. If I enter 160 positions throughout each year, each about 20-25% of my fund (remember I am comfortable managing less positions) OK, let's say each of 55 stopped $200,000 positions at 2% (not 3%) loss saved, or $4,000 x 55 = $220,000 added to return with this allowance. This would make significantly greater average annual return - at least for how I'm (conservatively) managing my funds. Also keep in mind I may never invest on margin but 2-3 months per year - and no more that half the 1M into positions, so 'buying power' must be kept in perspective as I'm not mister gung ho at selling against 2M all the naked puts possible because I am this great hedge fund manager. Gilbert aka Paysense Appox. same loss on the put option as for the stock - but the $2.50 the covered call writer keeps no matter what. I must still be missing something - perhaps big, which is good! Especially if this leads to me to a transition with an easy adjustment. A little help somebody?!?