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Managed Options Account
Old 10-05-2006, 06:57 PM   #1
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Managed Options Account

Curious to hear any feedback on this type of strategy.................

About 2 years ago I attended local investment co "free seminar" which featured a managed options strategy that was running 30-70 % return per year and got LT cap gains treatment........sweet. I put one toe in the water with IRA funds and waited (patiently) for my mega returns.

The stategy is to always sell short puts and calls on SP500 Options contracts which are usually 5-12 weeks from expiration. They mitigate risk by selling the contracts 5% or more away from where the index is currently trading, so there's very little chance that the market will move that much in 12 weeks. If it does, you can lose way more than the amount invested. To me, this was always very risky, so I at least I thought my eyes were open. The big gains come if the market moves up and down alot within a trading range. The mega returns never materialized, but the strategy did manage a tick under 1% gain per month from June 04 thru Sep 06 when I dumped it.........not bad.

The account pretty much went straight up (30%) until May of this year and then it bounced around a bit and I could see there was not adequate skill being exercised on timing the contracts, so it was time for me to exit. Also, I dumped it because it was a commision mill. They offered me an alternate commission schedule, but it was too late. I came to the conclusion that the option premiums required for the strategy to generate big returns were just not in the cards, so I was making 300/trade and paying $100 commission instead of making $700 or more on the same trade. Guess I'll go looking for something else, but I must say I AM sleeping better!
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Re: Managed Options Account
Old 10-05-2006, 08:20 PM   #2
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Re: Managed Options Account

Quote:
Originally Posted by jazz4cash
but the strategy did manage a tick under 1% gain per month from June 04 thru Sep 06 when I dumped it.........not bad.
You know that VTI from June 04 thru Sep 06 went up about 1% a month just all by itself?


As for simple option strategy, I have sold one month out covered calls for small premiums of about 1% per month for a strike price between 5% and 10% above current price. It is difficult to find such trades among blue chip companies because they just don't move that much. It sounds like you discovered the same thing with the strategy you described.
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Re: Managed Options Account
Old 10-05-2006, 11:31 PM   #3
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Re: Managed Options Account

Quote:
Originally Posted by jazz4cash
Curious to hear any feedback on this type of strategy.................

About 2 years ago I attended local investment co "free seminar" which featured a managed options strategy that was running 30-70 % return per year and got LT cap gains treatment........sweet. I put one toe in the water with IRA funds and waited (patiently) for my mega returns.

The stategy is to always sell short puts and calls on SP500 Options contracts which are usually 5-12 weeks from expiration.
Eh? How can options 5-12 weeks out be LT cap gains?
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Re: Managed Options Account
Old 10-05-2006, 11:54 PM   #4
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Re: Managed Options Account

Quote:
You know that VTI from June 04 thru Sep 06 went up about 1% a month just all by itself?
And with no cap gains distributed, and you can defer cap gains until you retire, when you are in a lower tax bracket. All the while, earning more cap gains and dividends on that future tax money.

Kramer

ps: jazz4cash -- thanks for sharing. I suspect many don't share bad experiences, and they are probably more valuable.
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Re: Managed Options Account
Old 10-06-2006, 12:35 AM   #5
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Re: Managed Options Account

Return is a function of the level of Risk.

You can choose the style of risk, but you can't change the equation. Pick your comfort level and time frame.



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Re: Managed Options Account
Old 10-06-2006, 09:46 AM   #6
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Re: Managed Options Account

Quote:
Originally Posted by sgeeeee
Return is a function of the level of Risk.
Yep, the risk inherent in the options strategy described above must've been very high in order to average almost 1% returns a month AFTER ALL THOSE COMMISSIONS!
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Re: Managed Options Account
Old 10-06-2006, 07:06 PM   #7
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Re: Managed Options Account

LOL.......
I looked at VTI and you're right........that 1% per month doesn't look so hot, but the account was up ~30% after 20 months. It fell along with the market, but the market recovered more fully.

Eridanus ....... "Eh? How can options 5-12 weeks out be LT cap gains? " Well I think its one the great mysteries, but did not concern me as mine was IRA'd. They swore it was accurate, tho I would've triple checked that one. They showed a copy of a 1099 at the seminar. It looked messy because they do MANY trades/month.

Kramer.........."ps: jazz4cash -- thanks for sharing. I suspect many don't share bad experiences, and they are probably more valuable."
Actually, I did not consider this a bad experience, albeit a lesson learned. I think I know the flaws to thier strategy, but not bold enough to pursue.

Sgeeeee.......Return is a function of the level of Risk.I agree it should be and a major reason for me to exit was moderate to high risk for mediocre return.

Finally, "Yep, the risk inherent in the options strategy described above must've been very high in order to average almost 1% returns a month AFTER ALL THOSE COMMISSIONS"!
............they'll miss me alot more than I'll miss them!!
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Re: Managed Options Account
Old 10-06-2006, 10:34 PM   #8
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Re: Managed Options Account

Quote:
Originally Posted by eridanus
Eh? How can options 5-12 weeks out be LT cap gains?
Cash-settled options on the S&P 500 qualify for 60/40 tax treatment, that is 60% of the return is considered long-term and 40% short-term, regardless of the holding period.
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Re: Managed Options Account
Old 11-15-2006, 09:16 PM   #9
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Re: Managed Options Account

Quote:
Originally Posted by jazz4cash
Curious to hear any feedback on this type of strategy.................

About 2 years ago I attended local investment co "free seminar" which featured a managed options strategy that was running 30-70 % return per year and got LT cap gains treatment........sweet. I put one toe in the water with IRA funds and waited (patiently) for my mega returns.

The stategy is to always sell short puts and calls on SP500 Options contracts which are usually 5-12 weeks from expiration. They mitigate risk by selling the contracts 5% or more away from where the index is currently trading, so there's very little chance that the market will move that much in 12 weeks. If it does, you can lose way more than the amount invested. To me, this was always very risky, so I at least I thought my eyes were open. The big gains come if the market moves up and down alot within a trading range. The mega returns never materialized, but the strategy did manage a tick under 1% gain per month from June 04 thru Sep 06 when I dumped it.........not bad.

The account pretty much went straight up (30%) until May of this year and then it bounced around a bit and I could see there was not adequate skill being exercised on timing the contracts, so it was time for me to exit. Also, I dumped it because it was a commision mill. They offered me an alternate commission schedule, but it was too late. I came to the conclusion that the option premiums required for the strategy to generate big returns were just not in the cards, so I was making 300/trade and paying $100 commission instead of making $700 or more on the same trade. Guess I'll go looking for something else, but I must say I AM sleeping better!
Quick update. Trustee has not transferred funds to Fidelity....I am told this routinely takes SIX WEEKS. Its been 5 weeks and my Fidelity holdings are up 3%.
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Re: Managed Options Account
Old 11-16-2006, 12:49 AM   #10
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Re: Managed Options Account

The name of this "strategy" is "gambling". Have fun with it and be prudent with the amount of money you risk, but please do not call this so called strategy 'investing'. I have a series 3 license (commodities) and can assure you that the only people who ever make money on options over the long haul, are the brokers who sell you the strategy.
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Re: Managed Options Account
Old 11-16-2006, 09:25 AM   #11
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Re: Managed Options Account

Quote:
Originally Posted by Alex
The name of this "strategy" is "gambling". Have fun with it and be prudent with the amount of money you risk, but please do not call this so called strategy 'investing'. I have a series 3 license (commodities) and can assure you that the only people who ever make money on options over the long haul, are the brokers who sell you the strategy.
A truer statement has never been uttered on this forum................
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