Monday, April 20, 2009

A Belated Performance and Strategy Update

Well...I did it again. I hit a rough patch, and I shied away from updating my blog. This has happened repeatedly. I really should stop hiding when the shit hits the fan.

Oh well. February and March where ugly and stressful. The market swung WAY down, then swung WAY up - screwing me on both sides. Perfect. At least April expiration finally allowed me to get back on track - earning 13% for the month. That's more like it. 

The experience of the past few months exposed some flaws in my approach; However, April's result gives me confidence that my fixes are a step in the right direction.

As the market appears to have formed a bottom (at least in the short term), leading stocks have begun to break out, showing some promise for the market as a whole. While I continue to seek profits from selling out-of-the-money (OTM) options premium on the S&P, I also am now attempting to catch some upside on the aforementioned market leading stocks.

To achieve this, I've begun purchasing bullish call spreads in selected stocks. My risk is limited to the purchase price of the spread, and I'm limiting the amount of positions I hold so as not to exceed the income I receive on selling OTM SPY call options. In otherwords, to offset the outlay of cash to purchase these bullish call positions on market leading stocks, I'm selling OTM call spreads in the S&P (SPY) as a hedge. I'm attempting to convert my SPY trades into a 10% portfolio gain per month. Meanwhile, trying at worst, to break even on my bullish trades.

Each Month:

If the market tanks hard, the worst thing that should happen is all my bullish positions will expire worthless, but I'll keep the entire premium I received on selling SPY call options - and thus earning a modest profit. 

If the market rips up, my SPY trades will have to be constantly adjusted, reducing the income from this hedge...meanwhile, many of my bullish stock positions should see impressive gains. This time the result would most likely be a nice profit.

If the market goes sideways, I should make around 10% on my portfolio for the month

I've included the italics because, as I've learned over the years, things don't always work out the way you planned.  

All-in-all, this seems like a good proposition. We'll see.


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