<p>I read an article from Mauldin (Putting a Good Employment Number in Perspective). he basically discusses the issue with people dropping out and say that this is not the case with this report. Mauldin has been moderately bearish for quite some time and this is the first time where I see some optimism in his writing since the beginning of the recession.</p>
<p>I kind of like selling puts for .20 to .30 also. Well I prefer .50 to 75…but I don’t want to go too many months out.</p>
<p>My personal trading is very irregular these days…so I have to admit…I am not paying enough attention to opportunities. </p>
<p>Some of the stuff I liked…well the stocks have gone up and the implied volatilty has gone down…so i don’t like the stuff as much…</p>
<p>My short puts are going out worthless in two weeks…I’m pretty sure…And then I have nothing on…( I am short some INTC puts).</p>
<p>But I’m going to look for more stuff…</p>
<p>The thing is …if we sell something for .25… If you are short 20… That is 500 bucks less commissions… If you do that 10 times…that is 5000…If we do that 100 times that is 50,000 less commissions. I am not saying we shouldn’t do this…but… We aren’t getting rich here.</p>
<p>" One advantage of the current market even though it is more expensive than before is that when I sell options or buy stocks, the correlations are starting to drop which means if I’m diversified, there will be a lower probability of being assigned on everything than when the market was significantly cheaper."</p>
<p>Example: IWM = 82.95, Feb 10 80 calls = .22 - .23, volatility = 21.5%, probability = 9.7% at expiration of being <=80.</p>
<p>5 contracts requires ~40k in acct and will get ~$100 x 52, 5200/40000 > 10% assuming iwm averages this price over the year. You need to pick the right stock. Of course if it goes up a lot, the returns will be less. Then maybe you need to sell call spreads. I’ve never looked at this and it makes me nervous. If I have to buy something, I’d rather buy it cheaper</p>
<p>If you were to sell OTM puts of IWM, then you may also consider selling OTM calls of TZA (triple inverse RUT). The time decay of TZA (because of leverage) is so much, that you can still make money in a mildly-down market.</p>
<p>You all need to wander over to the bogleheads forum and learn how to passively invest. Determine your appetite for risk, find no load mutual funds ie vanguard, do your age in bonds as a percentage of stocks vs bonds, diversify, make it automatic, do it over the long haul and don’t worry about the ups and downs. </p>
<p>There are much better ways to invest than passively in index funds. I can’t imagine a worse potential investment than a bond fund at this point in time.</p>
<p>doc - it’s why you have a much higher risk tolerance. Most people don’t have the knowledge or stomach for volatility. Trying to time the market is a losers bet.</p>
<p>My point was pick what you understand, don’t try and play the market and don’t try and believe you can out time the market.</p>
<p>I am invested aggressively in certain areas and conservatively in others. For ex my 401k is quite aggressive, but my sons college funds are extremely conservative. I keep an amount preserved in cash as well. </p>
<p>I’d only personally recommend “playing” the market as long as: you carry no debt, you have a savings cushion, you are saving for retirement and you are saving for your childs college. After that go right ahead, but I would guess the average joe needs to get those things under control first.</p>
<p>The method I outlined above is safer than what you’re doing and doesn’t require that much knowledge. As far as investing in bond funds, this is probably the most dangerous time in 30 years to be going into a bond fund (not bonds - bond funds). I don’t think the average investor who just follows Bogle’s advice understands that the game is different today than when Vanguard started their funds or the huge risk associated with it.</p>
<p>"Example: IWM = 82.95, Feb 10 80 calls = .22 - .23, volatility = 21.5%, probability = 9.7% at expiration of being <=80.</p>
<p>5 contracts requires ~40k in acct and will get ~$100 x 52, 5200/40000 > 10% assuming iwm averages this price over the year. You need to pick the right stock. Of course if it goes up a lot, the returns will be less."</p>
<p>Doct…just for the record…your formula is ($100 X 47)- ($x X 5) = ?</p>
<p>And that is assuming the implied volatility and the stock price are the same for a year…</p>
<p>I’m assuming 52, and that the contracts cost ~15. If volatility goes up (which I prefer) perhaps instead of 80 puts, they would be 77 to give me .22. Its also assuming roughly this price for an average price for iwm - it it drops (which it will at some point during the year), my percentage return will be greater. Besides weekly iwm and spy, I do go further out in expiration with other stock that I would like to own at a much cheaper price. This insures me that I’m buying low. Some of these are so otm, that if the stock or index hits those prices, portfolios would be the least of anybody’s concerns. I’m astonished at some of the puts and calls people buy - I guess that’s why it is a market. So you pick up a few hundred here and there that starts to add up over a year. I never try to hit homeruns - I’m not particularly a risk taker.</p>