Joe, It simply doesn't work with a spread conversion. The premiums you sell near term are so small that you don't cover the possibility of capital loss on the stock position.
But even in a straight put sale, which is the same thing as buying stock and selling calls, I go far out on the time chart. The fact is, time decay on the near term is supposed to be better according to the books, but the absolute #s give you very little protection. And, if the stock goes up, you make much more money on the much larger premiums. So, you outperform in up and down markets and slightly underperform in an absolutely flat market. This is one reason why I kicked the butts of those who dared compete with me on the Buy Treasuries/Short calls fund I managed and the Dividend Capture portfolios I ran for The St. Paul. They all went with the near term options and my longer term contracts nailed them. 90% of the time, short longer term options is infinitely smarter. And, the good news is, most options players believe the opposite. The simple fact they ignore is that annualized percentages rarely get annualized with shorter term options.
BTW, I tend to go shorter term on long options, 2-6 months, for the other side of the coin.
MB |
