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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (88688)	1/20/2001 6:39:06 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

To All, Maximum Income, part 3. Stock strategies. 1. Buy write/short secured put. A bullish strategy for an income portfolio. I tend to go with the short secured put most of the time, but not always. I prefer to use leaps, because if the stock goes up, you capture premium fairly quickly and the more premium, the more you capture. The long term stuff almost always beats the short term, and most option players are playing short term because their models tell them that what is happening isn't real. <g> I have few of these right now and most are in the natural resources area. Not the safest of strategies, but a solid income producer if you can pick stocks that won't go down. That is a different talent from picking stocks that will go up. 2. Spread conversions. Buy stock, sell at the money call, buy out of the money put. This is basically a buy write with a parachute in case the stock goes to hell in a handbasket. Here you want very volatile names. Yes, you are bullish, but picking a mover is more important than picking a mover upper. I have sometimes been totally wrong on a stock and made money on the spread conversion because the collapse increased volatility and the long put zipped up enough to save my patootie. That is not the most likely result, but a fast moving loser will lose you very little money. A fast moving up stock will make you plenty. Though I have used names like Dell and Lucent in the past, I usually prefer things like Brocade and BEAS. 3. Credit spreads. Bear, short at the money call, long out of the money call. Bull, short at the money put, long out of the money put. Again, Leaps on volatile stocks is the formula for success. The premiums are so pricey that you have to be dumber than a red brick fence to lose money consistently. Assuming you are diversified and holding cash for another run if you get a turkey. 4. Paired trades. Traditionally, this has been a long one stock, short a similar stock trade. However, traditionally, we used to get paid large short sale rebates to make this a decent game. My biggest coup when I worked for a hedge fund was a short Texaco, long Exxon trade that everyone hated besides me. The Bass Brothers were threatening to take over Texaco at a huge price. I thought they were all hat and no cattle on this one, and played it accordingly when Texaco went to a 50% premium to Exxon. The deal collapsed and Exxon went to a premium to Texaco and it was soooo nice. That game is over. Nobody wants to pay me 85-95% rebates on short sales any more. That being the case, the game is long calls on one stock and long puts on another. You are eating a lot of premium, but you can make a ton. I had a combination of long Intel, short Motorola traditional paired trade and long Intel calls, long Mot puts for years. It worked wonderfully, though there were times when I thought the guys in the white jackets would have to be called to take me away. No, not the mental hospital. Baskin Robbins. <g> Paired trading is a different game. I always bitch about relative performance as a measuring stick, but this is totally a relative performance game. The deal with the options, IMHO, is to make money on both the puts and the calls. Though I will always take a huge move on one and a loser on the other, as 100% is the max loss. I have never had a losing year in my paired trades, though I have had losing positions. Leaps are expensive, but one side always seems to pay off and sometimes both. And, often, very well.