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Genworth Financial, Inc. Message Board

  • jim280zxt jim280zxt Aug 9, 2010 1:53 PM Flag

    west..your battleplan

    could be the following if you choose to pursue it over the coming months..

    for starters i will assume that you do not wish to actually sell any of your long gnw shares for now and only some WHEN they will be at your long term holding low tax rate.


    you start position is what i call a power one with a $9 cost on the 8000 shares or $72,000 of capital at risk currently worth $13 or $104,000 or $32000 of unrealized gains.

    if you continue the plan of having 40 of the 80 sold contracts as close month positions and the balance spread out for further expiry dates and strike prices you should do great over the next year.

    if your 40 close month calls can generate just $.50 per month of net positive cash flow thats $2000 per month which achieves a $.25 per month net cost reduction in your $9 long shares.

    $.25 per month is $3.00 per year which should reduce your net share cost from $9 down to $6 at a minimum in 12 months time.

    your results will be greater than that because of the cash flow fronm the other 40 sold calls as they mature as a bonus to the plan.

    even if gnw declines to $12 by next august you should be in a manufactured doubled position at a $6 cost.

    your long shares would have declined by $1 or $8000 but you should be up $24000+ on option sales.

    at a minium over the next 30 months you would have a net share cost on gnw of zero assuming it trades in the $10 to $20 range over that time frame.

    you will have some months when gnw actually rises at least a $1.

    in those months you will be forgoing $.50 of positive cash flow in exhange for a $1 HIGHER one month option rollup.

    jim

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    • jim,

      Good.

      Thanks

      West

    • west

      on your remaining sold jan $20 calls you would have noticed that you have to pay the market makers ask price to close them right away.

      i suggest that you take your time with them in your wifes account. thats why i suggested a $1500 or so cash cushion.

      you can try entering a closing 10 contract amount midway between his bid ask for a day or so and see if it gets filled primarily with the normal ups and down moves of the stock.

      when it does you can then choose the replacement strike price and expiry month.

      the ideal situation for rolling them down is to have a close month cc expire worthless just below the sold strike price..ie $12.95 on sold aug $13

      since the next monday is a payday for,the expired calls, you dont mind paying a bit extra to close a few leaped positions since you would be cash positive at the end of the day anyway.

      20 calls sold one month out for $.60 is $1200 and pays for moving 10 jan $20 that might be $1.20

      you spent no new cash and eliminated that 17 month original time frame play.

      jim

    • Jim,

      I like it. I understand battle plans well..FYI, I have another 10K in my trading account that I wish to trade or have open for an extrodinary event...say a buyout. Ha! Saw your comments but who knows.

      West

      • 1 Reply to westboro_trader
      • west

        having otm leaped covered calls on an actual buyout stock is a gift when it happens as long as the takeover price isnt huge.

        lets say you had sold jan $15 2012 leaps on gnw for $2.25..an effective $17.25 selling price

        IF gnw had an actual all cash buyout with a $16.25 price, a $3 premium to today...

        what would happen is gnw would soar to $16.25..the done deal price.

        your sold jan $15 calls would drop to $1.25... thats the maximum they would be worth at expiry to the OWNER of the call.

        your long shares increase $3 and the sold shorted calls drop $1

        you would make a $4 profit without having to wait 17 months by simply closing the positions WHEN you chose to do so for tax purposes, 2010, 2011 or 2012.




        jim

 
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