Terry, I buy out of the money puts. Here is my thinking: I use a 90/10 system, 90% cash, 10% option premiums per year, so my risk is always minimal. What I need to do with minimal risk is maximize the returns on my winners. I expect to have more losers than winners, simply because a stock does not just have to go my way, it has to do so big time for me to make a profit. But a handful of winners on the magnitude of 1000% or more makes up for a lot of 100% losers. And the 90/10 keeps me in the game during a losing streak.
So, I swing for the fences while protecting myself with a conservative money management system.
This has been one of my worst years in 90/10, with a few dandy winners, Compaq, Rambus, Dell, American Home, Lilly, etc. being offset by a lot of losers, Solectron, IBM, Sanmina, MU, etc. I have also had a lot of what I call kiss your sister returns, up 50-200%, which don't feed the bulldog.
However, even with this as a bad year, I am up over 22% on the total 90/10 portfolio. I would be happy with that if it wasn't for the fact that the previous 3 years were up 137%, 124% and 76%. I know, I know, I was getting spoiled and needed some comeuppance, but I don't have to like it. <g> |
