Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Old 04-08-2008, 05:05 PM   #21
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,931
Originally Posted by brewer12345 View Post
I dn't understand what you are asking. Care to elaborate? The CD in the example varies after just a year. If you really wanted to, you could do the same thing every quarter with a new 90 day CD and a new set of options.

well we saw how to do an equity linked cd, how about a cd with an options boost linked to the direction of rates.

mathjak107 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-08-2008, 09:43 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
Join Date: Oct 2006
Posts: 7,427
Originally Posted by RockOn View Post
I haven't looked at option prices for awhile but just did. If I were to buy a 1 year at-the-money put to fully protect a SP500 position it is costing about 8%. That is very expensive insurance (I know the premiums are somewat high right now but not huge). When I last looked at EIA's, some offer unlimited (100%) of the upside, or close to it, for a few percent a year in extra expenses. How do they do it? Is it all gimmicks? (I suspect it is)

It seems to me that they do offer the insurance cheaper than I can do myself in the options market? What am I missing?
I am by no means an expert in these, but when I did investigate them and compared them with DIY approach I found it is hard to replicate them for the individual.

I think the most important thing to understand about annuities are they are very long term investment, and they impose huge surrender fees for the first one to seven years. This also allows the insurance to take long term investments. Typically this means higher rates on their fixed investments and less expensive prices for options.

You are right that a year put is expensive insurance. However, because the price of option increase at the square root of the duration, longer term insurance is cheaper for instance at the money Dec 2010 put cost about 5% per year vs 8% for a 1 year. In theory a 4 year put would cost 4%. I know that Warren Buffett has written decade plus puts for other insurance companies, presumably as hedge for their annuities.

In theory a 10 year put on the S&P should cost 2.5%/year. If you add in the 2+% dividend from the S&P you can see the it hardly cost an insurance company anything offer a product like this.

100% guarrantee to get your money back after 10 years.
100% of the gain of the S&P*

*some restrictions apply ....(caps etc...)

That o insure that in 10 years you will get your money back no matter. But we can also

clifp is offline   Reply With Quote
Old 04-09-2008, 07:28 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
Join Date: Mar 2003
Posts: 15,910
Originally Posted by mathjak107 View Post
well we saw how to do an equity linked cd, how about a cd with an options boost linked to the direction of rates.
Easy enough. Just follow the same methodology but use options on bond ETFs: TLT (long treasury), IEF (7-10 year treasury index), SHY(short treasury), etc.

"Neither my companion or I carry firearms on our persons. We depend on the goodwill of our fellow man and the forbearance of reptiles."

- English Bob
brewer12345 is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Rolling over annuity money to Variable Annuity?? bigcedargrandma Hi, I am... 4 03-20-2008 06:39 AM
Financial dinners and Equity Indexed Annuities janeeyre FIRE and Money 20 04-02-2007 08:03 AM
Insurance company trashes EIA mickeyd FIRE and Money 0 11-01-2006 01:43 PM
Managed versus Indexed danearnold FIRE and Money 11 01-31-2006 03:37 PM
Equity Indexed Annuities John_Lee FIRE and Money 0 04-07-2005 07:46 AM


All times are GMT -6. The time now is 04:26 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.