Strategic Income

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Bob
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Bob
September 19, 2009 2:01 pm
Reviewed: Mt. Vernon Research’s Strategic Income The Mount Vernon group of newsletters has not one, but two put selling newsletters. The first is Instant Money Trader, which specializes in selling well out of the money puts that are unlikely to be exercised. But the other put selling newsletter is the subject of this review. It is called Strategic Income, and is a put selling newsletter in disguise. The actual trades recommended are buy-writes with in the money calls. Example: On June 24, 2009 the following recommendation was made: Buy Silver Wheaton (SLW) at $8.60. Sell SLW December $7.50 calls at… Read more »
JPL
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JPL
September 19, 2009 5:38 pm

Hi, Bob,
Thanks for your write-up about the put-call parity.
I don’t know about the States, but in Canada, there is a reason why selling naked puts is not as popular as covered calls.
It is very difficult for the average investor to get an account to sell naked puts here in Canada. It took me several months to get mine, and that’s with persistence. Also, all registered accounts, such as RRSP (registered retirement savings plan), forbids it.

JPL
9-19-2009

Bob
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Bob
September 28, 2009 5:48 pm
JPL, selling out of the money puts that are fully covered by cash is less risky than buying stocks outright. After all, either the stock doesn’t get down to the strike price, in which case you get paid for trying, or it does, in which case you get the stock cheaper than if you had bought it the day you sold the put. Selling puts only becomes riskier than buying stocks when you use margin (promising to buy more stocks than you have cash to buy) or if you sell puts on dud stocks you really wouldn’t want to own.… Read more »
JPL
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JPL
September 28, 2009 10:11 pm
Hi, Bob, I used your very same logic to try to influence the broker to let me sell naked put options. It was difficult to say the least. So, I do agree with you that our Canadian brokers have ulterior motives (i.e. more commissions ) in making it so difficult for average clients to sell naked put options. On the other point, just to be fair to the Broker, I’m told ( by my brokers, so I might be mis-led) that the Canadian government forbids short-selling in all the registered accounts, and forbids use of margin as well in registered… Read more »
Bob
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Bob
September 30, 2009 10:32 am

[Here I continue the commentary rather than provide another review. We really need a “comment” feature here.]

JPL, I can’t short stocks in my IRA either. Nor can I use margin. I’m not allowed to do anything that could theoretically lose more money than I have cash in my account. But selling naked puts that are fully covered by available cash doesn’t involve margin. For as long as the short put remains outstanding the cash that covers it is unavailable for any other purpose. So I say your broker is blowing smoke.

JPL
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JPL
October 3, 2009 4:53 pm

Hi, Bob,
Yes, I have to agree with you that the broker is doing only what is advantageous to them, i.e. to “make them more money in commissions.” If they don’t allow shorting puts, then they shouldn’t allow shorting calls either, even if the calls are covered.
In the past, I’ve told them similar to what you said, that the naked puts would be covered with the cash in the account, but they still wouldn’t allow selling naked puts in the registered accounts.
Thanks for your confirmation. Bob. I appreciate it.

JPL
10-03-2009

sptegd
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sptegd
January 29, 2010 7:17 pm
I don’t subscribe to Strategic Income, but have used a put selling strategy since Feb 2009with outstanding results. Until this recent market drop, I’ve only been assigned 2 times out of over 50 cash-covered puts. I have been choosing underlying stocks with a strong or niche position. My target minimum return is 25% annualized, and last year I averaged about 30%. This change in the market direction is causing me to hold up for a while, since the strategy is best suited to a rising market. I’m expecting to be assigned a half-dozen or so stocks and will write calls… Read more »
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