To: Dulane U. Ponder who wrote (17723 ) 2/20/1998 9:18:00 PM From: Mike Gordon Read Replies (2) | Respond to
Dulane: Sorry for the late reply. Regarding the use of options, I use a unique strategy which demands that I relinquish any long term gains. My goal is to produce an income monthly. Therefore my candidates are equities which have a steady upward trend, have decent balance sheets, and are well respected by the 'street'. I will only purchase a stock by shorting (selling ) puts monthly until the stock is put to me. The strike price is either 2 1/2 to 5 points below the market. Lower, when the market is in an oversold position. For TA, I simply look at the price of the option, open interest, and the premium relationship to the corresponding call. Rich premiums are generally a sign of trouble, therefore I like to average premium to others in the same industry. When the stock is put to me, I quickly sell the covered call using the same analysis. Believe me, it is not easy. You focus or monthly rate of return on invested capital. NEVER annualize your returns. These figures are seldom accurate. BE CONSERAIVE, don't be greedy. I believe fund managers use the same tactics to enhance rate of return. To everyone on this thread, this strategy will limit your gains. For example, I will loose CPQ at 32.5, Intel at 80, LU at 80, and ALD at 40. (Selling the Lucent 80 February CC at 4 seemed good at the time after it had just been at 76 the week before.) However, after being in these issues for 2 years or more, I have more than made up for the gains missed this month. By Wednesday, I'll probably take a short put position in each of these for March. This strategy is dangerous if you don't watch the market daily.
