I am planning on buying back all of my naked puts in about six months. What would my returns be if in six months the stocks happened to be selling where they were now and the January options at that time were going for about what the July options are going for today?
I took a look at this and estimated what July options would be at in cases where the quarterly series is June or August instead.
Stock by stock, here is what the returns would be for six months for do-nothing stocks:
1) BAC 7.50's - now at $25 bid, they would be at around $9 asked in six months. Cash requirements are now $140 per contract and after commissions, profits would be $14. The return would be 13.9% for six months or 27.8% annualized.
2) F 10's - now at $46 bid, they would be at around $18 asked in six months. Cash requirements are now $148 per contract and after commissions, profits would be $26. The return would be 17.6% for six months or 35.2% annualized.
3) INTC 15's - now at $42 bid, they would be at around $14 asked in six months. Cash requirements are now $195 per contract and after commissions, profits would be $26. The return would be 13.3% for six months or 26.6% annualized.
4) PFE 15's - now at $50 bid, they would be at around $15 asked in six months. Cash requirements are now $202 per contract and after commissions, profits would be $33. The return would be 16.3% for six months or 32.6% annualized.
5) ABT 35's - now at $58 bid, they would be at around $18 asked in six months. Cash requirements are now $411 per contract and after commissions, profits would be $38. The return would be 9.2% for six months or 18.4% annualized.
6) CSCO 15's - now at $72 bid, they would be at around $29 asked in six months. Cash requirements are now $223 per contract and after commissions, profits would be $41. The return would be 18.4% for six months or 36.8% annualized.
Note that these are the expected returns if the stocks do absolutely NOTHING. If they do better, the annualized returns will be better - and indeed that is why I have done so well to date with this portfolio given how well the market has done.
Notice the significantly lesser expected return for ABT than any of the others. Just why is that? It's due to the fact that as a much higher stock where I'm selling a higher strike price, the MARGIN requirements are much higher - I'm having to put up $411 per contract instead of just the $100 to $225 for all of the other put positions. MARGIN MATTERS where the return is concerned. And that's why at houses that require $500 or more per contract, you will do very significantly worse than I will do where I have my account.
For the five open positions excluding ABT, the expected return over the next six months if the stocks do nothing would be 15.9% which is 31.8%.
Imagine that - returns averaging 2.65% PER MONTH for stocks that do nothing. Where else do you get that kind of return with such little performance? Now you know why I'm so excited about this strategy and won't stop writing about it.
If the stocks go down but don't crash, the returns would still be excellent although obviously not 2.65% per month. But what's wrong even with 1.65% per month for stocks that go DOWN moderately?
Babe the jackass is not right. You must be a sardonic detractor.
How much money did you make in the last 10 months? You probably do not have the guts to mortgage your house and invest it in the stockmarket in a new unproven, controversial tactic.But Babe did. Babe called it last October prospectively what he was up to and his criteria for success. He will wind up with 50K or more in 2 months. How about you?
I started the naked put portfolio with 100K because as it happened, I had 98K in reverse mortgage proceeds that the bank was obliged to send me. I decided to add 2K of my Free Cash Balances to that sum to arrive at an even 100K - good for keeping the arithmetic simple.
If I wanted to invest more in the strategy, I'd still use just six to eight stocks - I'd just bump up the amount of each position to, say, 25K instead of 15K to 20K.
A practical problem with the strategy is that there just aren't too many stocks that meet my rigid requirements. They have to be solid blue-chips that are pretty crash-prrof such as PFE, INTC, MRK, MO, MSFT, etc. As it is, to find enough stocks I have to stretch a bit to include the likes of PBR and BAC. These stocks besides being very liquid and relatively crash-proof also need to be fairly low-priced if you want the kind of returns that I'm getting. Just how many stocks are there that are big, solid, liquid and fairly low-priced? I also like to see them have LEAPS options and have options that trade in penny increments instead of nickel increments. For many stocks, the options still trade in nickel increments.
I've only been able to really identify about 15 stocks that I'm confortable with for my strategy. And at any given time, how many of them are going to be undervalued? So finding enough stocks is something of a problem at times - especially when the market as a whole seems to be getting too frothy.
I still think you should pick an easy to undersatand symbol of some kind, maybe NakedPutMVP or some such variant. Babe did his talking with his bat, (without steroids, just hotdogs)and that is why I recommended it. It says it all. They will criticize you anyway. if they call you a Babe in the Woods, reply with I am a Babe in the Bank.
Is the reason you only invest with 100K because you are conservative or that there are simply not enough good stock out there? If you had say, 160K, would you double down on current portfolio or expand the universe of stocks in the put portfolio to say 20?
Summer greetings to you