Dave, I use about 20 techniques for Maximum Income, but these are the ones I think are easiest to start with and offer some of the highest yields:
1. Leap Spread Conversions. Buy a stock, sell an at the money Leap call, buy an out of the money Leap put. Go as far out as possible on the Leaps to get the maximum premium on your short call. Usually you can get a worst case scenario risk of zero or one or two percent by buying the out of the money put correctly. And a standstill return greater than Treasuries. If that was the whole enchilada, you wouldn't play the game. The trick is to get a stock that moves and trade in and out while protecting yourself. Generally, my Leap Spread Conversions don't last 3 months in my portfolio.
2. Leap Credit Spreads. Bear: Sell an at the money call, buy an out of the money call. The bearish side of #1. Since you are using credit spreads, be sure you or your broker calculate the maximum risk involved. No surprises, no shoes, no service. <g>
3. Butterflying. By trading the first too strategies successfully, you can often end up with an advantageous version of #s 1 and 2 on the same stock. With the butterfly in place, you can often guarantee money market return while maximizing your return with any big move either direction. I don't do this often, as I usually find it more profitable to remove the winning trade and grin broadly rather than butterfly it. But I have butterflied from time to time.
4. Do spread conversions on Treasury futures while holding a physical equivalent cash position. For example, buy 1 $100,000 bond future, sell an at the money call, buy an out of the money put. Hold $100,000, less the net premium, in cash. Less return than #1, but that money market return helps a lot of people meet a monthly income nut. Also, there is much less chance that this won't work out. And I have had many T-Future credit spreads pay more than equity credit spreads. Less risk, more steady return.
And, of course, mix them up for total portfolio risk reduction. |
