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Re: Writing covered calls
Old 12-15-2006, 02:11 AM   #61
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Re: Writing covered calls

Quote:
Originally Posted by FIRE'd@51
Let's say you buy a stock at 100 and write a one-month at-the-money call at 3. Stock drops to 90 and call expires worthless. Now, what do you do?
And that's for sure where I would cross the line in explaining her Method. As a strong suggestion, to keep me from sounding like a shill salesman troll, she offers and recommends going to her free sessions to hear her explain and answer questions that you would have. You will also meet some of the graduates, as generally there are some different ones that show up each time for the free food to explain their results. She has one of those sessions monthly in Dallas, Frisco TX, and Arizona (forget the city but it's on her website. She also has an evening question and answer on line meeting, but I'm not sure if that is for grads or non-grads, I just haven't gone to that one. As ERD50 has done, she also has info on her website.
There, that should get me out of the line of fire, I hope.
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Re: Writing covered calls
Old 12-15-2006, 07:33 AM   #62
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Re: Writing covered calls

Whitestick; I think you are overly protective as to the "secrets" of her methods - after one have sold, I guess one then does another screening where one "filters" out the baddies and find another "goodie"?

I am considering dabbling in this a bit myself - but wants to learn more first - sofar I am not convinced though... - but will do more research.

CHeers!

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Re: Writing covered calls
Old 12-15-2006, 09:48 AM   #63
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Re: Writing covered calls

Quote:
Originally Posted by FIRE'd@51
Let's say you buy a stock at 100 and write a one-month at-the-money call at 3. Stock drops to 90 and call expires worthless. Now, what do you do?
Quote:
Originally Posted by whitestick
And that's for sure where I would cross the line in explaining her Method. .......
Quote:
Originally Posted by ben
Whitestick; I think you are overly protective as to the "secrets" of her methods - after one have sold,
Well, I didn't take the course, so I can't violate any secrets (since I don't know them), but I think I understand fairly well what would be done in this case, and a glance at the patent application seems to confirm this-

A) It sounds like some averaging down occurs - buy more at the lower price. How much to buy and at what points are probably part of the 'secret'.

B) Sell calls against either that lower average price, or against some specific shares or group of shares and let the others ride for the month.

The really 'interesting' part, is that while the stock is dropping, there does not appear to be any calculation or admission of the loss. Everything is stated in terms of 'income' (yield). And this is where IMO, clients are being badly misled. If you look only at the income stream (the option premiums), well, of course it is always positive - it really can't be anything but positive (just like dividends from a bond). With this same line of thinking, Vanguard could claim that their junk bond fund has never had a down year - they always produced 'income' - but they don't do that, and, legally, they cannot do that. Kim has no such restrictions as I understand it, as a 'publisher' she is not held to SEC accounting rules.

Income is counted, but, stock loses are just carried forward with the hope that they become gains or small loses. Now, often times, that will happen. And the combination of focusing on income, and keeping loses 'unrealized' for as long as possible, can lull these types of players into a false sense of security. But what happens in an extended down market?

Kim does not seem to want to share performance numbers for a down market (or total returns), even though the system was being taught and used in the 2000-2002 down market.

But, that does not seem to worry whitestick - I wonder why? Shouldn't an investor be concerned about the risks of their investment technique?

Again, just my opinion, but the strategy sure looks like a basic covered call plan to me. Sure, she wraps all these specific rules on how to select stocks, and how to 'bundle' the dropping stocks and all. That appears to me as just window dressing to justify $3175 for the info. Does any of that actually reduce the risk or improve the total return (of course, total return is not in her vocabulary)?

I'll follow up with a simple example a bit later.

-ERD50





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Re: Writing covered calls
Old 12-15-2006, 11:13 AM   #64
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Re: Writing covered calls

Quote:
Originally Posted by ben
I am considering dabbling in this a bit myself - but wants to learn more first - sofar I am not convinced though... - but will do more research.
ben - here is a simple example, and will show how you can derive a steady income stream while losing real money(!):

OK, so looking at the patent app, Kim says to sell a covered call at the next strike price above the stock price.

BTW, this has been done before - you don't need to pay to learn it, here is some history:

http://en.wikipedia.org/wiki/CBOE_S&P_500_BuyWrite_Index_(BXM)


So, for example, let's look at the QQQQ index this morning (Dec 15, 2006). QQQQ is at $44.61. The next month out call at the next higher strike is the Jan 07, $45 strike (QQQAS). You could get $0.65 for that call. So, here are the numbers:

Buy QQQQ @ $44.61
Sell QQQAS @ $0.65

Total out-of-pocket = $43.96 (ignoring comm/fees)

'Yield' from sale of call: 1.4786 % (.65/43.96)
'Annualized Yield': ~ 15.4% ( figuring 35 days holding period)

See how easy it is to make 15% annualized yield - even when the stock is flat?

Now, if QQQQ is above 45 on Jan 19, 2007, you keep your $0.65, and your stock is called from you, you realize an added $0.39 gain.

Total profit = $1.04; % gain = 2.366%; Annualized gain = 24.67% !!!!

Pretty sweet - right? See how easy! Of course, if QQQQ drops to 43, you have a loss of $0.96; -2.18%; -22.77% annualized loss. But, this is not the accounting that Kim appears to use - she says you just made a positive 15.4% annualized yield that month - 'unrealized losses' are 'old school' thinking!

And, if you did this in March 2000, you would have sold a call on QQQQ at around 120. Averaging down over the next year would have just resulted in additional loses. It would be tough to earn much premium on your original $120 investment, with the stock below $40 most of the past six years! And it looks like a long, long time before we will see QQQQ at 120 again.

http://ichart.finance.yahoo.com/z?s=...ff&z=m&a=v&p=s

Now, whitestick may say that there are all sorts of details in Kim's method that would save us from such a downturn. Fine. One simple question then:

If her stock selection and other methods help prevent against loss, why does she not publish total return data (which should look good), or data in a down market?


Oh, and ben, if you are interested, I could describe a system that I have been using. It might actually act more like a 'synthetic bond' than the SIM method, I don't know. But I tend to sell calls below the stock price to gain some additional downside protection, and make me less sensitive to small moves in stock price.

I can't really know how well it will work in all markets - you are still somewhat dependent upon stock price movement and stock selection. And your trade off is that you cap your gains to the call premiums ( 2-3% per month, depending on how much risk you want to take). But, I do measure my total return each month. And I won't charge you for the information.

-ERD50
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Re: Writing covered calls
Old 12-16-2006, 01:18 AM   #65
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Re: Writing covered calls

Quote:
Originally Posted by ERD50

Well, I didn't take the course, so I can't violate any secrets (since I don't know them), but I think I understand fairly well what would be done in this case, and a glance at the patent application seems to confirm this-
.....
There is a requirement when you take the course that you sign a non-disclosure regarding the "inner" workings of the system to protect her patent, I suppose. That's why I may appear to be overprotective. It seems that you have read the published parts of her patent application, and have a fairly good understanding of what is there, as far as what is published.

But, that does not seem to worry whitestick - I wonder why? Shouldn't an investor be concerned about the risks of their investment technique?

Absolutely concerned, and the proof so far - an I stress so far, YRMV, is that it is as safe as or safer then any other investment in the stock market. Everyone that I talk to that has taking the course and gone on to make their living off of it, has started slow and cautiously, feeling their way, and confirming the results. As the results confirm her story, they add to their total funds invested. I suppose that the worry disappears over time, as demonstrated results are consistently happening. And, I stress, that it is easy enough that the wife or SO can pick it up and continue on achieving the same results. Sort of like the way that a Mac is easier to use then a PC, but there are millions of PC users willing to continue using their PC because that's what they know.

Again, just my opinion, but the strategy sure looks like a basic covered call plan to me. Sure, she wraps all these specific rules on how to select stocks, and how to 'bundle' the dropping stocks and all. That appears to me as just window dressing to justify $3175 for the info. Does any of that actually reduce the risk or improve the total return (of course, total return is not in her vocabulary)?

My results were that within 3 months, on an initial allotment of $27,000, just what I had, I paid for the course for me and my DW to take the course. Now there is a greatly reduced fee for your spouse to take it at the same time, but nevertheless, that was my results. Given that I wasn't getting close to that for the same investment in growth funds, I believe that is justified. IMHO. My friend that told me about the course, had a similar result, from a year before me. It took him that long to talk me into even going to listen to her free sessions, and I had to do that twice, before I was willing to commit to paying that price to take her class. That's why this discussion reminds me of my objections when my friend told me about it.
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Re: Writing covered calls
Old 12-16-2006, 10:38 AM   #66
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Re: Writing covered calls

Whitestick, have you read

"Fooled by Randomness" by Nassim Nichales Taleb?

It discusses the concept of risk and how people's perception of it is warped by how we are wired psychologically and by our recent "wins" in the market. In particular, it talks about traders who use strategies that seem low risk to them, but are particularly vulnerable to "black swan" events. Your strategy seems on the surface (although I'm no expert on it) to be a risky one, and the "accounting" procedures seem designed to minimize the perception of risk.

Personally, if I had as much invested in the type of strategy you describe, I would give it a read. It's very entertaining in any event, even if it isn't applicable to your case
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Re: Writing covered calls
Old 12-16-2006, 11:35 AM   #67
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Re: Writing covered calls

Quote:
Originally Posted by bosco
Whitestick, have you read

"Fooled by Randomness" by Nassim Nichales Taleb?
bosco, I did read it this year - an excellent read, I also highly recc it. It made me think over my own strategies a bit more critically. I doubt that it is on Kim's 'recc reading list'.

BTW, I don't necessarily agree with all Taleb says - but there is so much value in this book. Another good one is 'Against the Gods: The Remarkable Story of Risk' by Peter L. Bernstein

What if I got hit by a 'black swan' event (the rare, unforeseen events that *do* occur from time to time)? Sure, the odds are, by definition, slim - but cannot be ignored. What if I wiped out a big part of my portfolio, what would I do? That is where diversification comes into play, but consider this:

The Nasdaq 100 (QQQQ), a basket of 100 stocks - dropped from 115 to 20 (an 82% drop in value!) from 2000 to 2002 and spent most of the next 4 years under 40 (less than 35% of it's 115 value). That really got me concerned about holding a basket of 10 to 20 stocks - no matter the selection process. Over my lifetime, could I get hit by a 'black swan' and see even more than an 82% drop - I just cannot rule that out after reading Taleb's book. It really does make you think.

whitestick - take a look at the stocks in Kim's performance data (or your own current basket). What percentage are components of the NASDAQ 100 or other highly volatile index? Or, if they were around in 2000 - how did they weather the storm? What could happen in a future down market?

-ERD50

PS to whitestick - I will answer your other comments a bit later - thanks

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Re: Writing covered calls
Old 12-16-2006, 03:14 PM   #68
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Re: Writing covered calls

Here's my two cents and for what it is worth, I hold a series 3 license and have extensive experience trading futures and options:

(steps up to the soapbox)

"this is a scam. You'll go broke doing this crap. If you want to gamble go to vegas"

(leaves soapbox)

whatever you gamblers decide to do, I wish you the best of luck. Just remember that is all it is, luck.
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Re: Writing covered calls
Old 12-16-2006, 10:35 PM   #69
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Re: Writing covered calls


Quote:
ERD50: Shouldn't an investor be concerned about the risks of their investment technique?

whitestick: Absolutely concerned, and the proof so far - an I stress so far, YRMV, is that it is as safe as or safer then any other investment in the stock market.
And the problem with that statement is (of course).... you have been using the method in an UP MARKET. So, you really don't know if it is 'safer then any other investment in the stock market', do you?. And Kim (how many times have I said this, and you will not address it) offers no data on how it performed in the down market of 2000-2002. Worse yet, she speaks out of both sides of her mouth on the subject:

on one page of her web site, she gives the impression that the method works in up and down markets:
Quote:
Originally Posted by themethod.kimsnider.com/growth.php
The alternative was to use what I knew to engineer an alternative method that would make money in all market conditions.
but then we find:

Quote:
Originally Posted by themethod.kimsnider.com/qa.php?archive_id=375
I began teaching the Snider Investment Method in 1999 and had students who were using it, as was I, during the period 2001 and 2002 when the market was falling. We cannot, however, publish that data because it is incomplete.
How convenient to give the impression that the system works in down markets, but not be willing to present data for that time frame.

Her 'comparisons' to other investments are always Apples-to-Oranges. SIM 'yield' against stock market total returns; SIM 'yield' compared to average bond 'yield' - w/o 'total return ' data - ignoring that stocks you are holding have more downside risk than the bonds she compares them to. This is like saying junk bonds are 'better' and 'safer' than investor grade bonds, because their 'yield' is higher. No snake oil there? Really? Really?

If Kim's stock selection and method work so well, she would be publishing total returns - not just yield. OK, so she says you may need to hold a stock for two years, so, after two years, the total return should be looking just dandy. So why, even in an up market, does she NOT present 'total return' data for 2002-2005?

Please understand, I truly believe her method would provide attractive returns in an up market - what I don't like, is both you and her dismiss the risk during a down market, focusing only on 'yield'. Very, very misleading (I am being kind when I say that).

Quote:
ERD50 - Does any of that (her methods) actually reduce the risk or improve the total return (of course, total return is not in her vocabulary)?
No answer from whitestick on this. I would really like to hear an opinion on it.

Have you met any of those alumni from 2000?

BTW, I was wrong about an earlier assumption I made - Kim actually does have 'Fooled by Randomness' on her reading list! How ironic.

-ERD50
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Re: Writing covered calls
Old 12-17-2006, 02:00 AM   #70
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Re: Writing covered calls

Quote:
Originally Posted by bosco
Whitestick, have you read

"Fooled by Randomness" by Nassim Nichales Taleb?
Have not, but will look for it on Amazon (used in paperback of course to save shekals)
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Re: Writing covered calls
Old 12-17-2006, 02:50 AM   #71
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Re: Writing covered calls

Quote:
Originally Posted by ERD50
And Kim (how many times have I said this, and you will not address it) offers no data on how it performed in the down market of 2000-2002. Worse yet, she speaks out of both sides of her mouth on the subject:
....
No answer from whitestick on this. I would really like to hear an opinion on it.

Have you met any of those alumni from 2000?
-ERD50
Ok, I was waiting to get an answer from Kim, herself, as I obviously was not trading back in that 2000-02 period. Here is her reply
"Bill-

I donít have an answer for him. We cannot publish any performance data from that time period because it does not meet regulatory requirements. I can tell him our performance was good during that period of time, as good or better than it is now, but I canít give him any empirical data.

We have graduates from that time frame that would be more than happy to talk with him. One you know is xxxx from the cruise. We have a couple others as well. I would be happy to forward names and phone numbers so you can pass them on.

Warmest Regards,
Kim
"
Ok, it may not be the answer you want, but at least it is the answer from Kim. As to the name removed, I will contact him, and see if he wants to offer his experience, or maybe even join the group. I'll probably ask the others as well, just to drive home the response from more then one source.
Which also answers partially your question about having met these alumni from that period. i have met him, and others, although generically speaking, none of the folks that I have met, say that it is a problem, and their comments are that it doesn't make any difference - they see the same results. Which is consistent with Kim's story.

[/quote]
ERD50 - Does any of that (her methods) actually reduce the risk or improve the total return (of course, total return is not in her vocabulary)?[/quote]

(Hope that worked to paste in. Guess not. Not sure how to paste in quotes from other posts.)
Her methods and selection process, appear to me, to be very conservative within the idea of options trading. As I think I mentioned before, her response to most of the alumni's questions about modifying a little bit for more income, is that "to maintain a risk profile that produces consistent results, go back to the book and reread the item being questioned, and follow the book". I believe that it does reduce the risk, and improve the "yield". i don't compare to the total return either, as I haven't tracked that. Her method provides the forms to track each positions yield when closed, and that is what I have been using. She does provide a monthly snapshot form, to look at total performance for all positions (something that seems close to what you are asking for), but honestly, after going through all the calculations to show that it was positive, I saw little value in keeping that up, so quit doing that. I take a mental snapshot (I know - bad form) that shows increasing values of total portfolio as positions close and others are added, and that gives me the same "warm and fuzzy". Probably not empirical enough for what you are asking, but that's what I do.

Re: the Fooled by Randomness book, I have not read it personally yet, but from the statements made here, and the assumption you can make from it's title - Kim quotes quite a lot of what I believe to be the same thing - Make decisions on numbers, not emotion, etc.

[/quote]
whitestick - take a look at the stocks in Kim's performance data (or your own current basket). What percentage are components of the NASDAQ 100 or other highly volatile index? Or, if they were around in 2000 - how did they weather the storm? What could happen in a future down market?
[/quote]

In my current basket, with the exception of 1, which is only there because I transferred it in from another account when I was finally able to close that account, and haven't sold it yet - waiting to be called away, none of the others are in the NASDAQ 100. Hadn't really looked at Kim's data. I did have a couple of the stocks in the 100 in past positions, but they were called away, and didn't meet the criteria to rebuy them since that time, at the times that I did my trading. As to how they weather the storm, that's where her method differs, from conventional capital appreciation valuation. It doesn't matter, as you are still collecting the income on average, and somewhat unconcerned about their actual selling price. It does even out, which is why she recommends the two year period. Actually she shows how to continue to draw off the money even before the two year period, but that is not on her web site, and I don't want to get into that at all, since I'm staying more conservative then that.
Hope all this helps. You've made me go searching for more answers to your questions then even I had originally.
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Re: Writing covered calls
Old 12-17-2006, 11:44 AM   #72
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Re: Writing covered calls

Quote:
Originally Posted by whitestick
I donít have an answer for him. We cannot publish any performance data from that time period because it does not meet regulatory requirements.
I bet copies of her Schedules D would meet these alleged "regulatory requirements".

I must admit, though, that I'm impressed by her use of weasel words. She makes Kiyosaki look like a stuttering amateur...
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Re: Writing covered calls
Old 12-17-2006, 02:47 PM   #73
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Re: Writing covered calls

whitestick Today at 02:50:21 AM

RE: performance data in a down market

Quote:
Originally Posted by Kim
I donít have an answer for him. We cannot publish any performance data from that time period because it does not meet regulatory requirements. I can tell him our performance was good during that period of time, as good or better than it is now, but I canít give him any empirical data.
This looks like more double-speak to me ('weasel words' as Nords says ). Does the data she presents for the up market time frame meet 'regulatory requirements'? We are just supposed to 'trust her' that the down market 'performance' was 'good or better'? Trust but verify, I say.

And further - what 'regulatory requirements' is she subject to? As I understand it, she is not under ANY regulatory requirements, as she is a 'publisher', not an 'investment advisor'. Maybe Kim could enlighten us in this area - we need some light here. It appears to me that she hides under 'regulatory requirements' when it comes to reporting in a down market, but ignores those same 'regulatory requirements' (which, I believe, include reporting 'total returns') for reporting in an up market. Curious?

I think this quote from her legal page is 'interesting', no mention of meeting 'regulatory requirements' that I could find:

Quote:
Originally Posted by www.kimsnider.com/legal.php
Legal Information

This information is solely for the purposes of soliciting workshop attendees for Kim Snider Financial Communications. Some testimonials from alumni of the workshop give their individual performance results. We have not verified these results.
Now *that*, I believe to be true! So, she can't produce numbers for 2000-2002 because they cannot be verified? But, it is OK to present select individual performance results, even though "we have not verified these results"? Double-speak? Double-standard? Or worse?

Quote:
We have graduates from that time frame that would be more than happy to talk with him. .... Warmest Regards, Kim
Self selected clients from Kim is not much of an indication of typical performance, as she says herself. How did the average client do? - no data. But it still might be interesting to hear from them.

Quote:
Originally Posted by ERD50
- Does any of that (her methods) actually reduce the risk or improve the total return (of course, total return is not in her vocabulary)?

Quote:
Originally Posted by whitestick
I believe that it does reduce the risk, and improve the "yield". i don't compare to the total return either, as I haven't tracked that.
Then - how DO you measure 'risk' - how can you say it reduces 'risk' w/o any definition of risk? You def need to read 'Fooled by Randomness'!

Total return is a very simple calculation (a bit more complex if you have deposits/withdrawals): (End_Balance minus Start_balance) divided by Start_Balance. Compare that month-to-month variation with a bond fund as one measure of risk.

Quote:
Originally Posted by whitestick
As to how they weather the storm, that's where her method differs, from conventional capital appreciation valuation. It doesn't matter, as you are still collecting the income on average, and somewhat unconcerned about their actual selling price. It does even out, which is why she recommends the two year period.
This is also double-speak. 'It doesn't matter', but, 'it does even out'? Why do you care, or even mention that it 'evens out' if it 'does not matter'? And if this is true, a 'total return' number would show it (within two years, to be generous). But, Kim does not publish 'total return' numbers. Even though, that *is* a regulatory requirement for the mutual funds that she mocks on her web site. She can't be held to the same standard?

IMO, the reason that 'her method differs, from conventional capital appreciation valuation', is that is a distraction to present her method in the best light for as long as possible, to build up client's 'confidence' in the system, w/o regard to 'regulatory requirements'.

1) Delay the accounting of losses,
2) focus on yields (by definition - positive),
3) no definition or measurement of risk,
4) no data for down markets,
5) compares the positives of the 'system' to the negatives of other investments (instead of apples-apples)
6) No data on volatility of the NAV of a portfolio

- it all adds up to....

I'll let the reader decide, but there is a clue in my earlier use of the word 'confidence'.

And, thanks for responding and for getting some input from Kim on these issues. I find it all very interesting. If I could get the data I need, I might consider an investment in her course. So far, that data has not been forthcoming.

-ERD50
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Re: Writing covered calls
Old 12-17-2006, 02:58 PM   #74
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Re: Writing covered calls

I am so happy to see all the interest that this inane thread has gotten. It renews my faith in mankind which recently had been slipping.

BTW, remember-


Writing a covered call is identical to writing a naked put. Writing a covered call is identical to writing a naked put. Writing a ...

Still sound conservative and magical?

Ha
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Re: Writing covered calls
Old 12-17-2006, 03:28 PM   #75
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Re: Writing covered calls

Quote:
Originally Posted by Alex

whatever you gamblers decide to do, I wish you the best of luck. Just remember that is all it is, luck.
Awwww, come on Alex - what do you mean by 'gamblers' and 'luck' - what does gambling and luck have to do with charging >$3000 for a two day workshop?

Oh, you mean the clients will need luck?

Seriously, I do believe that there is *some* profit to be made selling options. It makes sense to me that there must be some premium there to compensate the seller for taking the risk. And yes, I recognize the risk of holding a stock with a covered call, or having to commit $ for a stock put on you with a naked put. It seems a premium is needed to 'make the market'.

Now, can an individual take advantage of that, or is the premium too small to outweigh the individual stock and general market risk? That I do not know - but I don't suspect that there is very much excess premium there, no 'killing' to be made.

I have also studied all sorts of 'conservative' options approaches. From what I can tell, any way you wrap it up, it all comes down to that premium for taking the risk. All the complications in the world don't alter that equation. But, often, the complications make the approach seem like more than it is.

It's kind of like a perpetual motion machine - no matter how you convert that energy, it all gets used up. There is only so much (if any) excess premium - no one is giving away any more than they need to in order to place their 'bet'.

-ERD50
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Re: Writing covered calls
Old 12-17-2006, 11:28 PM   #76
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Re: Writing covered calls

Quote:
Originally Posted by ERD50
whitestick Today at 02:50:21 AM

RE: performance data in a down market

This looks like more double-speak to me ('weasel words' as Nords says ).

Self selected clients from Kim is not much of an indication of typical performance, as she says herself. How did the average client do? - no data. But it still might be interesting to hear from them.


I talked to Kim again, and she agrees that to try and answer your questions, and also offer some of the results from the students, you should call her directly (her number is on the website, or email her at kim@kimsnider.com and pose your questions, requests. It doesn't sound like you will be satisfied with any response, but at least you might get some satisfaction to ask the questions and receive answers.


Total return is a very simple calculation (a bit more complex if you have deposits/withdrawals): (End_Balance minus Start_balance) divided by Start_Balance. Compare that month-to-month variation with a bond fund as one measure of risk.

Alright, I went back and did the simple calculation that you requested. It is a bit more difficult in that I had to extract out the money that I added mid-stream and withdrawals that I did as well this year, to give a pure vanilla comparison. Barring any mistakes that I might have made cause there were a lot of trades to go through to check, for the last two years (and I know you are going to harp on an up market), my total percentage return is 41.142857% divided by 2 for the 2 years or an annual total return of 20.571429%. I didn't try to adjust between the years for NPV or anything like that, just the simple numbers. And before you ask, it was on available funds, not what was invested, and was a dollars available north of $175k. Obviously better then her percentages, but I'm sure it will be attributed to hot market and luck.


And, thanks for responding and for getting some input from Kim on these issues. I find it all very interesting. If I could get the data I need, I might consider an investment in her course. So far, that data has not been forthcoming.

-ERD50
And yes I need to read the book, and will when I get the chance, probably next year.
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Re: Writing covered calls
Old 12-18-2006, 08:37 AM   #77
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Re: Writing covered calls

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Originally Posted by whitestick
I talked to Kim again, and she agrees that to try and answer your questions, and also offer some of the results from the students, you should call her directly
You know, my crystal ball told me this was the most likely response. I don't think Kim likes this sort of open discussion in public. Maybe there are just too many people on this forum with good insight? Most of the the people on this forum don't pay 3~4% in fees on their mutual funds like she says her typical clients do. Tough crowd, huh?

Well, I may contact her, but I will be posting the summary info here for further discussion and review. I won't be asking for any confidential info, just simple explanations to the public claims she makes. If she tries to 'muzzle' the info she shares, the conversation ends - and I'll let everyone here know about it. There are a few other forums that would be interested also.

Quote:
Originally Posted by ERD50
what 'regulatory requirements' is she subject to? As I understand it, she is not under ANY regulatory requirements, as she is a 'publisher', not an 'investment advisor'. Maybe Kim could enlighten us in this area - we need some light here.
It seems she could have provided a direct answer to this simple question. Nothing confidential there, should be public information, should be on her web site. What's the problem?

Quote:
Originally Posted by whitestick
Barring any mistakes that I might have made cause there were a lot of trades to go through to check, for the last two years (and I know you are going to harp on an up market), my total percentage return is 41.142857% divided by 2 for the 2 years or an annual total return of 20.571429%. I didn't try to adjust between the years for NPV or anything like that, just the simple numbers.
Nice returns, congrats. I won't 'harp' on it being an up market, but, the fact is that it was. And, as I said, I expect a method like this to work well in up markets - no big surprise.

I am a bit confused about your calcs though (' a lot of trades to go through to check') - I thought we were just looking at beginning and end values of the account? No need to look at individual trades - maybe this is not the number I was looking for?

Remember: (End_Balance minus Start_balance) divided by Start_Balance

No 'trades to go through'. Simple calc on total returns. This cuts through any flak - it's the 'real deal', money in the bank.

Well, you were not using the system during a down market, and Kim won't release numbers. We do have something though. Look at the data below. This is from my tracking of option contract periods since Jan 2005. The following months are the periods that BOTH the QQQQ and SPY were more than 2% down for the month (option month). Look at your balances on those specific dates, and see how you did in those down periods. That might give us a little insight. It is a limited amount of data, but it might be a peek into what might happen in an extended downturn. You might learn something.

QQQQ; SPY returns for these option contract periods:

17-Dec-2004 to 21-Jan-2005 -6.63% -2.23%
18-Mar-2005 to 15-Apr-2005 -4.85% -3.71%
16-Sep-2005 to 21-Oct-2005 -2.16% -4.34%
21-Apr-2006 to 19-May-2006 -6.31% -3.08%

FYI, my system of selling below strike puts/calls was negative in each of those periods, but less negative than either index. Logic tells me that selling at-the-money, or out-of-the-money calls would provide less downside protection, so see how you did those months. Share the results if you wish to.

-ERD50
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Re: Writing covered calls
Old 12-18-2006, 11:42 AM   #78
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Re: Writing covered calls

Quote:
Originally Posted by HaHa
I am so happy to see all the interest that this inane thread has gotten. It renews my faith in mankind which recently had been slipping.

BTW, remember-


Writing a covered call is identical to writing a naked put. Writing a covered call is identical to writing a naked put. Writing a ...

Still sound conservative and magical?

Ha
Amen! DO you remember the TED SPREAD? it was an options strategy that relied on the spread between T-bills and Eurodollars. It made me alot of money, unfortunately my clients lost their asses. Kinda like this scam strategy of writing naked puts covered calls!
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Re: Writing covered calls
Old 12-18-2006, 12:26 PM   #79
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Re: Writing covered calls

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Originally Posted by ERD50
It makes sense to me that there must be some premium there to compensate the seller for taking the risk....It seems a premium is needed to 'make the market'.
I don't think one is always paid to take a risk.

Not the same situation, but let me make up a related story about commodity futures:

The old theory is that when a producer sold and the speculator bought a commodity future, the producer paid the speculator an insurance premium, to reduce risk of lower prices than expected.

But now it is conventional wisdom among institutional investors, that buying commodity futures offsets some stock risk, and total portfolio risk. And, institutions have much more money to invest, than the total value of commodities produced. It's plausable that institutional investors will pay producers (and speculators who sell futures) a premium, instead of recieving one. The investor buys a hedge for the portfolio and pays a premium, the producer gets paid(!) to get rid of risk, and the speculator gets paid to take risk of higher than expected prices.

If a speculator who doesn't own stocks buys a commodity future under this scenario, they are not getting paid to take the risk of lower than expected prices, like the old theory says they should be.
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Re: Writing covered calls
Old 12-18-2006, 02:32 PM   #80
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Re: Writing covered calls

Quote:
Originally Posted by lazyday
I don't think one is always paid to take a risk.
lazyday, I do appreciate the input - I'm always looking for ways to think through these contracts and risk. But, I'm not sure I'm following you.

I think there is a fundamental difference between option contracts and futures. I know very little about futures, so correct me if wrong, but I skimmed some info here: en.wikipedia.org/wiki/Futures_contract.

The big difference is that commodity futures are an obligation to deliver, not an option to deliver. So, it appears to me each party is trading one type of risk for another - each gives up something, each gains something. So, I don't think either one needs to make money on the deal - they are exchanging risks.

Maybe Alex can chime in and tell us if this looks about right.

An example:

When farmers contract to sell their grain at a set price at a future date, they are doing two things. One, eliminating the risk that grain prices will be below the contract price (reducing risk for them), and two, giving up the opportunity of better profit if grain prices soar. I've never dealt with futures contracts, so I'm not sure who is the 'seller' here and who is the 'buyer' (maybe that is where I got lost). But, I would think, that on average, the farmer is trying to be risk adverse (can't afford to lose out if prices drop and miss his mortgage payment), so would be willing to accept just a bit less than expected average prices, just to guarantee against sharply falling prices. I know that I would consider the trade-off.

It would seem unreasonable to expect a guaranteed price to be (on average) higher than the expected price - that would be free lunch money.

On the other side of the contract, is probably a bread manufacturer who wants protection against rising grain prices, they would be willing to pay just a bit more than the expected average price, just to get the guarantee against soaring prices.

Falling prices bad for farmer, good for baker. Rising prices good for farmer, bad for baker. So, they exchange risks with a contract somewhere in the middle.

I'd assume the market makers are making money on the difference, they are being paid to bring the parties together and manage the contracts, like any wholesaler.

I guess speculators are betting that the assumptions on future prices are wrong.

For options contracts, it is very different. The buyer of the call puts their premium at risk (if it expires worthless), but it may only represent 5% of the stock price. The option seller is on the hook for the every penny that the stock price drops below the strike price (20x the option price in this case). The market will not price that option w/o the seller being paid a premium for accepting the risk. Now, whether that premium is sufficient for a small investor to take advantage of is what I am curious about.

There are many systems that would appear to be able to make excess profits in the long run, but, if you get wiped out along the way, it doesn't really matter, does it? Much of the book 'Fooled by Randomness' addresses that very issue.

Thanks - ERD50
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