Wayne, The income portfolio is the largest of my three portfolios and the one I discuss least often here. The reasons for this are many. I manage money for a maximum income partnership and I don't discuss that in public until after positions are unwound. However, I do talk about my IRA income account. But, the simple fact is, income in the 12-18% a year range is boring in a market like this, and, to complicate matters, the strategies are complex and I rarely get questions on them. In fact, you and AntMan are the only two folks I remember to take an interest. So, let me elaborate.
The IRA income portfolio is very conservatively managed, as opposed to the wild and woolly cap gains and 90/10 portfolios. I use over 10 strategies in this portfolio, including fixed income options, closed end income funds and other non-equity related techniques. But, on the equity side, low risk Leap and regular options spreads have been my bread and butter for years. I even use some stocks I hate in the 90/10, like Dell and Lucent.
One strategy I like is the no-risk straddle, which you can often get with today's wild premium levels. Though I often take risk while I leg into a position, I never have any capital risk in the income portfolios, net net. So, I may do something like buy Cisco (or, more likely, Commscope, a co. I already hold in my cap app portfolio, but I do use names I don't like, too, as the hedge is the game, not the stock) at $87, a stock I hate but which has bubble level options premiums, and sell two year out Leap calls struck at $90. If the stock rises, I then buy $80 or $70 strike price puts with the same expiration date so that I am in the total position where a small positive return is my absolutely worst case scenario.
True, I am at large risk on that position until I buy the put. However, since no one position represents more than 5% of the IRA income portfolio, the portfolio has no risk of cap loss, even if Cisco goes to zero. That is a key, as the number one rule for income portfolios is to never lose money.
In the managed account, in which I own a chunk of the capital, I generally avoid the stocks themselves and leg into credit bear and bull spreads the same way. Since I still have the concept that I will not lose money no matter what, the long part of the spread is usually the first thing I put on, though a short put also has defined risk. I never, or should say, rarely, short a call before going long a call because of the unlimited risk potential. In this account, I use over 20 strategies and generally do not bother much with the underlying issues. For example, I have a Swiss Franc bullish credit spread, not long the currencies themselves.
The partnership does not have the IRA limitations, so it is much more efficient and outperforms the IRA every year. Again, I like to find myself in situations where making a small positive return is my worst case scenario. So, I may start out with a bear spread, short an at the money Leap call and long an out of the money Leap call, but as it goes my way, I put on a credit bull spread, short an at the money put and long and out of the money put, creating a butterfly spread.
With the partnership, I also get a huge short sale rebate, which I cannot get on my own. So, I do what I call the new era convertible arbitrage a lot, buying a Leap call and shorting the stock against it. But I don't recommend these to anyone who does not receive a huge rebate.
Hope this helps. |
