No. of Recommendations: 17
Yeah I just got on shrewd'm so I'm replying to old threads. You don't have to read these if you don't want to.
First off, it has been said before, and often by people who have tried it, but options strategies are HARD to use to make ADDITIONAL money. You PAY for leverage and the people you are paying think they are making money, so you should wonder what the implications are for whether you are making money or not. A good friend of mine made buckets of money for years. For years he
1) Mostly was just very long APPLE
2) Would trade around the edges selling puts to goose his returns.
He would analyze his results once in a while, comparing his long+options strategy to a "box of rocks" strategy of just staying long AAPL. What he found usually is he would have been better off just staying long AAPL stock. The box of rocks was smarter than the box of brains, at least if making money is your measure of IQ.
Later he traded a more volatile rising stock, and I did a relatively incomplete analysis of some of his options around the edges trading, and concluded that goosing your returns by selling puts was like going to Las Vegas, an expensive hobby that (it turns out mostly) he could afford because the underlying position was doing well.
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Second off, and really more interesting, the data Mungofitch posted looks fun if plotted. I would characterize it as:
1) For Price/PeakBook < 1.35, the Price/PeakBook WANTS to be about 1.42 or so, and will get to a price that would have been 1.42 ratio in a year about 50% of the time.
2) For 1.35 < Price/PeakBook <= 1.64, P/PB wants to be 0.06 higher, and will get there within a year about 50% of the time.
3) P/PB does NOT want to be higher than 1.64 and price will drop to enforce this MORE than 50% of the time within a year.
Note that in the broad middle, P/PB wanting to be .06 higher does not mean you will make inflation + 6% on your stock. You are starting at 1.35 to 1.64 so a 0.06 rise gives price appreciation results of 0.06/1.35 down to 0.06/1.64 or 4.4% down to 3.7% real appreciation in a year.
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It is a pleasure to be back on the old boards. Which by the way are much nicer now than they used to be, if that makes any sense :)
R:)
