No. of Recommendations: 10
I got this from my files - very old. It seemed to work great during the late 1990's internet boom, but didn't afterwords.
Taz
OPTIONS SIX-THREE CALL
This is derived from a concept proposed in a Motley Fool discussion group by Sparfarkle.
1. At no time invest more than 5% of the portfolio's total value in options. In order to keep total commission costs at a reasonable level (10% or less) buy at least 2 contracts on each company. (As of Feb 2001 Quick & Reilly charged $37.50 per option plus $1.75 per contract. So total buy-sale commission for one contract on XYZ is $78.50 and for three contracts was $85.50 ' only $7.00 for two additional contracts.)
2. If the overall market trend is either bearish or uncertain, (i.e., S&P500 index currently running below its' 200-day moving average) DO NOT purchase any CALL contracts. If the market is bearish, skip to the section below titled Negative FCF Screen for Selecting PUT Options to determine if the climate is right for buying PUTs.
3. If the market is trending bullish (S&P 500 daily index and its 50-day moving average both currently running above the S&P 200-day moving average), purchase 6-month call contracts on three to five of the CAPRS screen stocks that have published options (buy on the first Monday of the month and select 'Buy at Open', and buy equal dollar amounts of each option). Do not buy contracts on any equities that are already in the portfolio. Buy contracts around 10% out-of-the-money, i.e., strike price approximately ten percent higher than the current stock price. Buy the contracts in the early part of January, April or July. Do not buy any contracts selling at prices greater than 1/9 their equity share price (too much time value premium included). Hold the contracts for three months, and then sell them. (On the fourth Friday of the month, or the following Monday. Select 'Sell to Close'. (Do not sell any contracts that are worth less than the commision amount. Wait until they rise above the commision amount or let them expire worthless.) Occasionally, the underlying equity will skyrocket 20% or more in price during the time that the Call contract is owned. If this happens use the procedure defined below in 'Rolling Up Call Options' to determine if contracts should be repositioned.
4. Do not compound options profits year-to-year (see step 1). If, during any calendar year, the portfolio allocation for options is entirely lost then do not buy any more options until the next calendar year.
