Interestingly enough, they are the do-nothing stocks that many people are LEAVING for greener pastures. Fairly low-priced stocks that don't move much but are quite defensive on the downside - especially after dips.
Heaven is a $20 stock where you can write 15-strike naked puts at my brokerage and garner such returns as 22% for 10 months, etc.
Stocks where it's pretty unlikely that the strike price will be seen but which can easily be rolled out a year and down 2.5 points just in case - such as a 15-strike naked put expiring in Jan. 2012 being rolled out a year to the Jan. 2013's and down to the 12.50 strikes.
There are all kinds of stocks that few are excited about that fill the bill - names like INTC, CSCO, MSFT, MO, KFT, T, BAC, F and PFE for starters.
Ever since my brokerage drastically lowered margin maintenance requirements on low-strike stocks on 6/23/10, annualized returns well into the 20's are readily available on these stocks that so many consider to be dogs.
But dogs in the eyes of some are fabulous money-makers in the eyes of those that know the option ropes.
Well, he did know that a 2.9% gain every eight days would produce less than a 100% gain in a year. Sorry, now that I look at it I can see that was your point.
Do you know that UCLA is not a state supported school?
"defensive on the downside- especially after dips"
just a basic vocabulary lesson for you, sport: a stock that is defensive on the downside wouldn't *have* dips. that's kind of what "defensive" is all about.
perhaps your personal definition of "defensive" means something more like "losses cannot exceed 100% of invested capital"- which would indeed be conservative compared to your normal routine.
Here is an excerpt from your post:
no desperate need to roll down when liquidity is lacking
This seems to be a favorite ploy of yours - using scary or freighted words - such as DESPERATE. There is NOTHING at all that is DESPERATE about rolling 15-strike naked puts expiring in Jan. 2012 down to the 12.50's and out to the Jan. 2013's.
What is DESPERATE about THAT? I simply give myself a lot more downdide leeway if the stock or market is going against me but I still like the fundamentals and want to hold on for the recovery.
In doing the rollout, I might be going from a 25% annualized return for 10 months to perhaps a 14% annualized return for 22 months but what is wrong with a 14% annualized return for a stock that has really tumbled - such as from $20 down to $14? And how does a buy-and-hold investor's return at $14n on the stock 22 months out compare with my annualized returns in the teens?
THESE are the meat-and-potato situations where I want to be materially outperforming and if that means having to lose 90% of my stock market money the 1% of the time that PFE drops to $8 when others are "only" losing 60%, I enter into that proposition with my eyes wide open.
This was the last paragraph of my post on Friday:
<<I post this just to exchange an interesting options strategy. I'm not trying to convince anybody to do anything like this. However, with Pfe having risen nicely, many people undoubtedly find themselves with calls written at 16 or 17 and may prefer to unwind the positions and put on a bull spread. Just something to consider if you remain bullish on Pfe. No margin is needed to put on a bull spread for cash and there is therefore zero risk of a margin call. You can, though, lose, but the maximum loss is what you put up for buying the calls, less what you got for writing the calls. One thing that is key is selecting the correct strikes to put on the bull spread>>.
I gave an actual example of a trade I did once a covered call got to be deep in the money, because I realized that it could be useful to people in that position with Pfe. When I explicitly wrote that I was not trying to convince anybody to do any trade, for you to write this is outrageous and downright dishonest:
<<By the way, what a hypocrite you are. I didn't see you mentioning risks with the 50/60 bull spread you recommended on a $56 stock the other day. What happens if that stock falls just a mere 10%?
I can withstand 40% declines and you find fault while yourself recommending plays where you lose your whole investment with just a 10% decline>>.
I don't expect an apology, only because it's you, but you have some nerve writing that.
I do trades that have significant risk and huge potential reward. But the risk is well defined in the case of a bull spread. There is no risk of a devastating loss, no risk of margin calls, no desperate need to roll down when liquidity is lacking, etc. And remember that I did the trade after having a covered call become deep in the money, meaning I had a large gain which I wanted to take a good chunk of and limit the potential loss going forward.