<p>With the leverage and still the opportunity to get a delta ~1, those dividends don’t mean much. SPY is very liquid although the spread is definitely larger than the .01 to .02 of the etf. Its also more work to do options but it is still worth it if you’re not trading multiple times a day.</p>
<p>DocT:</p>
<p>How far out of the money do you go with the puts?</p>
<p>Also, what is “DIM”?</p>
<p>The money I save buying the option, I can use to cover myself in case I get assigned on those puts that I sell or invest it in cd’s or bonds.</p>
<p>DIM = deep in the money. When I’m buying options, I like to have it mimic the stock which means I gain and also lose the same as if I own the stock but get the same movement with less money. I usually sell puts that have a probability of 10% or less. Its risk vs reward, I settle for making less income on these but also have a higher probability of not being assigned. It all depends on what you want - income or to buy the stock cheaper. At this point of my life, I’m looking for generating an income stream. One word of caution with this method is that you better do this with something you want to own because anything can happen and if it closes at or below the strike price, you will be assigned and have to come up with the money to buy. I never trade on margin so I always have the money in the account to cover all the purchases if the puts go south on me.</p>
<p>The call prices include the interest costs…which are negligible right now…</p>
<p>Spy options are very liquid compared to other issues…</p>
<p>A remarkable stat related to OTM puts–unless I am reading the chart wrong, SPY dropped more than 10% in a month only twice in the last decade–Oct. 08 and Feb. 09</p>
<p>[SPY</a> Historical Prices | SPDR S&P 500 Stock - Yahoo! Finance](<a href=“SPDR S&P 500 ETF Trust (SPY) Stock Historical Prices & Data - Yahoo Finance”>SPDR S&P 500 ETF Trust (SPY) Stock Historical Prices & Data - Yahoo Finance)</p>
<p>In pursuit of better dividend yields, I have acquired several of the LMP’s ( limited master parnerships) dealing with energy and energy transportation in addition to NLY that are in the 5% to 10% yield range. Some examples are KMP(6.10%); PAA(6.01%); PWE (5.75%); PGH (7.84%); LGCY(7.35%); NGLS(6.42%); and MVO(9.52%). The Canadian MLP’s do get hit with a 15% Canadian tax, however, before your net dividend. They do ride up and down with the oil market so there is some downside risk but I am in them for the dividends.</p>
<p>I recommend leaving PWE outside of 401Ks. They report your 401K stuff as taxable.</p>
<p>PGH has been a favorite of mine in the past. I’ll have to take a look at the others as I am not familiar with them. It’s generally better to hold these in taxable accounts as you can’t recoup the Canadian taxes and wind up with double taxation.</p>
<p>“The Canadian MLP’s do get hit with a 15% Canadian tax, however, before your net dividend”
We have income from a Canadian mineral rights trust, and file IRS form 1116 [Foreign Tax credits form] which helps to reduce the taxes we pay here. Last year we received credit for 1/2 of the 15% paid in Canada.</p>
<p>I own kmp, it got hit pretty hard with the drop in oil and has since recovered.</p>
<p>I would like to know how to hedge a portfolio without it costing a fortune. I’ve ordered a book: “Buy and hedge” which will supposedly discuss this. Other than buying puts or put spreads, I don’t see how to do it. The puts are expensive unless they’re OTM which means that you need to lose a lot of money before they provide protection. You can reduce the cost by selling puts with a lower strike price but still it doesn’t work that well. If you sell calls against your positions and the stock keeps dropping that doesn’t do much either. Anybody have any ideas?? Also not including stop losses.</p>
<p>Old investing rule: Before age 50 be 100% invested in stocks. Starting at age 50 move 10% of your portfolio each year into fixed income. At 60 and beyond you should be 100% in FI. Rule flexes for a net worth greater than $500K. But only for that portion exceeding $500K. And at any stage beware the dangers of being “house rich”.</p>
<p>Hedging costs money…or…you are going to give up some upside…</p>
<p>That rule will not work with fixed income at current rates and for the 30 plus years you may live. For each million, the cd rate of 1% will give you 10,000 - how many millions in the future do you think you’re going to need to live on including the effects of inflation?</p>
<p>How do I hedge giving up some upside and it costing me not much money?</p>
<p>If I’m wrong, I just eat the loss. I guess that’s one way to hedge.</p>
<p>You use a collar…you buy puts and you sell calls…the calls pay for your puts…but your upside is limited to the strike price of the calls…</p>
<p>You can also trade a vertical spread…</p>
<p>Where you buy a call and sell a higher priced call…</p>
<p>I read the table of contents of the book…</p>
<p>They have married puts in the book…buying the stock and buying a put…unless they do this in a ratio…this has similar characteristics to a buying a call…</p>
<p>Then they have diagonal spreads in the book where they put together a call spread with a time spread…</p>
<p>Then there are other ways to hedge…maybe some of them are in the book…</p>
<p>You can just buy a longer term put and sell a shorter term put…if the shorter term put expires…you own the put for less…it is an imperfect hedge…and if the stock drops early…the time spread won’t help you…</p>
<p>They have your strategy of buying dim calls instead of stock…I think.</p>
<p>Anyway, I think you will like the strategies in the book…</p>
<p>I think they are expensive to enact though…lots of commissions…</p>
<p>I hope we don’t have 1% rates for 30 years unless we have zero inflation…or deflation.</p>
<p>We can play with this calculator…</p>
<p>[Retirement</a> Calculator - How much to retire?](<a href=“http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx]Retirement”>Retirement Calculator - How much to retire?)</p>
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<p>Millions? Really, you’ll require millions? </p>
<p>Wow. </p>
<p>You must be a real 1%'er.</p>
<p>I’ve looked at all kinds of spreads including ratio spreads and numerous other multileg strategies - collars, strangles, straddles. I don’t use any of them as they cost too much.</p>