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To: drangundsturm

Buying stock right now would scare me. I do not have any and don’t want any.


17 posted on 09/01/2010 5:49:15 AM PDT by screaminsunshine (m)
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To: screaminsunshine

We are going into what are historically the two months most likely to crash, sep and oct, and we have seen a clear deterioration in the economic figures in the past few weeks, so you are right to be nervous.

I have index funds but they are heavily hedged using deeply in the money covered calls. This yields far more than bonds, and doesn’t lose money unless the market falls by more than 5% in the next month. Even if it does fall that far, there are follow-up actions that will protect most of the principle down further.

The reason i do this is because, while this is a very scary time for stocks, the market is pretty oversold right now, and bonds may be heading for a huge bubble pop so they are no better. If the data improves even slightly, the deeply in the money calls will lose all their time value and I can unwind the position for a quick profit. If the market stays flat, the options again lose time value and I collect dividends in the meantime waiting for them to expire and call away the stock. If the market drops modestly (5%), I still get all of the above benefits. Only in the case of a sharper drop (6+%) does this position start to lose principle. But if a drop starts to occur, I could in most cases roll down the options to a lower strike to provide more of a cushion. The main risk is if there is a sudden “gap down” that does not allow time for a roll. That could happen but I’m ok with taking that risk.


46 posted on 09/01/2010 6:46:16 AM PDT by drangundsturm
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