Replacement investment for maligned financials naked put-writing portfolio
Did you ever consider that there are great reasons why C is near 12-month highs? The two main reasons are:
1) Earnings are surging
2) C was the ONLY main bank to fail stress tests an year ago but their reserves have been dramatically shored up in 2012 and the company is expected to breeze through the upcoming Jan. 2013 stress tests.
Regarding C's earnings, here is their recent history and near-term consensus estimates:
$3.63 in 2011 (actual)
$3.92 in 2012 (consensus - with one quarer to go).
$4.65 in 2013 (consensus)
$5.23 in 2014 (consensus)
Even after failing the stress tests, the lowest that C got was $23.40 or six times the current year's expectation. Obviously the multiple at the low will be much higher once they pass the Jan. 2013 tests but even at just six times earnings, the stock would still be a $28 number.
If you buy a stock at $39 and it falls to $28, you are in for a pretty good-sized loss. But with my strategy of selling 23-strike naked puts, I would wind up with PROFITS of at least 22% annualized as long as the stock continued closing about the margin-safe price of $25.90. In other words, C could lose a full 1/3 of its value from here and I would STILL have that fine percentage return.
By the way, using your WMT which is about $69, just what do you suppose would happen to the value of 60-strike naked puts if the stock should lose 1/3 of its value to $46? You would absolutely be blown out of the water. But with C, I can indeed withstand a 1/3 tumble in the stock price.
Also, WMT really has nothing special going for it next year. While C DOES have something special - almost certain passage of the stress tests which will allow them to materially hike their dividend.
With my investment in C, I essentially have a sure thing and would have to pay off only in the event of another 2008-style crash. Whereas a WMT investment is strictly hit or miss. If you don't mind, I'll take the almost sure thing.
One other thing: Margin requirements really go up on naked puts once a stock falls below the point where it's only 12.5% above the strike price. So if WMT starts closing below $67.50 for 60-strike naked puts, more margin will be needed. There sure isn't much downside leeway with WMT to $67.50. Whereas with the C 23-strike naked puts, there is downside leeway with respect to margin requirements all the way down to $25.90 with the stock currently north of $39.
I am the Real McCoy when it comes to options investing and you really ought to try and learn from me instead of critisizing and being such a naysayer. What I do absolutely works in all types of markets except an all-out crash. Nothing else comes close and almost nobody else in the country has the kind of returns that I do. And that is a FACT! And I don't just make claims regarding my returns - I show every last investment on this board in real time so you can see just where those returns are coming from.
A lot of assumptions in your post. And those assumptions prove what? NOTHING!
I sell puts on stocks that have prices lower then their OP price and at the most hold no longer then 2 months. I generally keep 25% to 50% of the premiums paid. I keep 15 to 20 positions running at all times.
I will be out of my WMT positions within 30 days, with at least a 35% of the premium paid. So according to your calculations what is my annual return?
You will be out of your WMT positions inn30 days with 35% or more of the current premium as profits? Really? What happens if the stock goes down? MY strategy takes that little possibility into account while your strategy is strictly "good-time Charlie."
By the way, what do you mean by "OP price?" I'm not familiar with that term.