kyounge1956
Thinks s/he gets paid by the post
- Joined
- Sep 11, 2008
- Messages
- 2,171
You may have heard of a portfolio proposed by Zvi Bodie (author of Worry Free Investing), combining TIPS with a 5-10% allocation to LEAPS to give produce returns that keep pace with inflation plus a possibility of gain when the stock market goes up with less risk of loss if it goes down. The idea has been discussed on several threads over at Bogleheads, including a link to a Monte Carlo simulation of the potential returns and volatility, but I've never seen a detailed description of exactly how one would set up and manage such a portfolio. All the information I have gleaned through my reading on the topic is that the specific LEAPS included in the portfolio are at-the-money calls.
I did some reading about options and have tried to think it out for myself, but I'm just not getting it. Could a TIPS fund be used or must one use the individual bonds? Should the TIPS be all one maturity, or laddered? What term to expiry should the LEAPS have? Hold the LEAPS to expiration and then exercise if appropriate, exercise as soon as (you hope) the market goes high enough to make exercise profitable, or don't exercise at all but seek to sell the LEAPS itself at a profit? There are just too many questions I don't know the answers to. I'm consumed with curiosity and my requests for more details at bogleheads have not elicited the desired information, so I'm asking here: has anyone here either seen a detailed description of how this would work, or figured it out for themselves?
I did some reading about options and have tried to think it out for myself, but I'm just not getting it. Could a TIPS fund be used or must one use the individual bonds? Should the TIPS be all one maturity, or laddered? What term to expiry should the LEAPS have? Hold the LEAPS to expiration and then exercise if appropriate, exercise as soon as (you hope) the market goes high enough to make exercise profitable, or don't exercise at all but seek to sell the LEAPS itself at a profit? There are just too many questions I don't know the answers to. I'm consumed with curiosity and my requests for more details at bogleheads have not elicited the desired information, so I'm asking here: has anyone here either seen a detailed description of how this would work, or figured it out for themselves?