Riskless(?) Covered Call????

Discussion in 'Options' started by wayneL, Mar 6, 2007.

  1. wayneL



    I'm not a particular fan of covered calls, but was pointed to this blog post: http://www.callwriter.com/blog/2007/03/05/new-riskless-covered-call-strategy/

    It's John Brasher's blog and of course he is trying to pull in some seminar business, but the concept intrigued me. I would love to have a look at this strategy to see what he is on about... haven't been able to bust it from the "clues".

    Anyway here's the post - Any ideas what it is?:

  2. I don't have time to beat this guy down (the blogger), let's just say he's FOS. :p

    I'm sure some others will give him hell...
  3. That excerpt is so full of crap it's hard to disect.

    I suspect he's putting on equity collars or verticals and leaving that "minor" detail out to make you sign up.
  4. The only riskless options/equity strategy would be where you buy an equity, write a call & buy a put at the same strikes. This will not work on most average stocks. You would have to get something with a little more beta. If you want a real world example, check out NVDA as it is hovering around the $30 mark. An April collar would yield you a dime & a June collar would yield you 30 cents or so with 0% risk.

    Tying up all of your money for 3+ months to pocket 30 cents is really not prudent or practical, unless maybe you are a conservative billionaire. I think if you annualized this kind of return it would be somewhere around 5%ish. Assuming of course you use no margin in this kind of strategy, because that would wipe pretty much all of your profits out.
  5. wayneL


    I'm thinking along the same lines, in which case he certainly is FOS.

    Each strategy I can think of either doesn't match the "clues" (eg collars) or contains significantly more risk than indicated.

    More creative stuff usually has vega risk that is easily hidden from noobs.
  6. just21


    Maybe he is using a LEAP or longer term put option that is paid for by a couple of months of short calls. You could just do covered LEAPS.
  7. MTE


    Won't work, those 10-30 cents are cost of carry on the stock, so there's no zero risk profit there.
  8. MTE


    That guy is FOS as others have suggested.
  9. Apparently it is a carry trade (buy conversions/reversals for a credit equivalent to the risk free rate). I pointed this out on the blog. He believes the new margin rules would allow you to own 1000 shares of google for $18k.
  10. wayneL


    BTW the "Wayne" commenting on the blog is not moi.
    #10     Mar 6, 2007