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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: David Wright who wrote (10842)5/19/1999 12:22:00 AM
From: Dan Duchardt  Read Replies (1) of 14162
 
David,

Your compounding period has to match the cycle time of the availability of your principal.

I cannot really comment on your calculation because I don't have the details, but the point of my calculation was to correctly account for the availability or unavailability of my principal. I assume your calculation includes things like margin interest rates and the appropriate leverage, but I can't reconcile the disparity. This makes me think you have assumed that an amount of my capital corresponding to my final NUT of 11_13/16 was tied up for the entire three weeks, but in fact the last 3 of that was only tied up for one day. I had full use of that last increment of money for the first 20 days.

In the no margin case, if I did have 11_13/16 tied up for the full time then my return of 3_1/16 would have been only 26%. The average daily NUT method I used recognizes that in fact I only had those last 3 dollars tied up for one day, and that raises the rate of return to 35%.

I did not include the put premium in my calculation because that is still an open position, but worst case we can assume a total loss and deduct 3/4 from the gain. Of course the put tied up some of my capital as well, but only for the last 4 days. If I include both prongs of this fork in my calculation, I come up with 26%, which suggests to me that a calculation including margin should be in the 50% area. Would appreciate knowing a little more detail of your calculation, or someone pointing out a flaw in mine.

Dan
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