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

To: Richard Nehrboss who wrote (56214)	4/16/1999 10:15:00 AM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Richard, Part of the question has to do with how she needs her money. The spread conversions, long stock, short usually Leap calls, long out of the money puts, offer large income returns at low risk, but it is not something you can use for a monthly check. Another technique I use would be to do the same strategy with T-Bonds. Buy a T-bond, sell an at the money call, buy an out of the money put. You would receive the interest more regularly and the option strategy would kick in over time. Better, if she can afford lower monthly income, is to buy the bond futures, short the at the money call and buy the out of the money put. The future obviously is perfectly keyed to the options while the bonds may be slightly off, if they are not the cheapest to deliver. Of course, if she is willing to take the risk of a bond, she can eliminate the put for more pure premium from the call sale alone. Since she is an income investor who, I assume, will not be spending the money in the near future, she might as well get the most bang for the buck. She can also use 10 year notes or 5 year notes, though the call premiums get kind of puny down in the 5 year area. Or some mix of the maturities. The bond option trades require a minimum of $100,000. The stock spread conversions do not. Preferable to corporate bonds, IMHO, are the closed end fund preferred issues. Gabelli, Royce, and General American all have such issues, Gabelli and Royce with several. I own RGL- and GAB- in my own IRA. They yield about 7.5%, which is great for AAA credit quality. They have little upside, as the fund can buy them back at $25 after a set period of time, generally 3 to 5 years out. But, if she wants good income, they deliver more at much lower risk than corporate bonds. Much more difficult and perhaps impossible to explain to her are credit spread butterflies. But they are dandy income generators. In this one, you hold cash in a money market to collateralize the deal. Then, you sell a bull credit spread and a bear credit spread at the same strike price. For example, if UCL is at $35, you sell a $35 call and buy a $40 call, same month. Then, you sell a $35 put and buy a $30 put, same month again. This should be done at no capital risk. In other words, your net credit should be more than $5 in the example above. Then, she holds $7000 in money funds to collateralize all possibilities. She gets interest on that, and on perspiration day, she gets as much as $5 and as little as zero as a bonus. If played with the right stocks, that can boost her income trememdously. But it is a tough game and I have had trouble explaining it to pension fund managers, much less a mother in law. <g> Good Luck, MB