Since I am going on vacation next week, away from all things technology-based, I thought I'd wrap up my Leap Strangle strategy as it reaches one year (averaging the laddered months to 12). As with any portfolio, this one of 24 stocks has superstars and laggards.
To explain, I started this in December of 2012 with Nokia, remembering a strategy utilized by a client at Schwab when I was working in options there: find a lower-priced stock ($5 to 25), possibly with a dividend, and also LEAP options - expiring January 2015 or 2016- and sell OTM (out-of-the-money) puts and calls for high return as well as the safety of a cash up front cushion. Most people fear options because of their leverage risk, but covered calls, like this and the DITM strategy, actually are safer than a "naked" or unhedged stock portfolio, plus option premium can add to the profits.
Recently I toted up current P & L results from my Schwab platform (Edge), which I shall share, with the disclaimer: don't try this at home unless you have a fair knowledge of options and trading.
Over all profit from all stocks and strangles (like a straddle, but different option prices): 20+% so far, with expiration date still months ahead - Jan. 2015 and 2016 (some options were rolled out and up, or down, adding to the profit). These results are actual profits, as if I wanted to close out the trades today and take the money. Otherwise let them expire, using them as a hedge and build even higher over time. Here is the symbol leaderboard, starting with the high point gainers (including dividends, rollouts, and option decay):
NOK- up 82%
RAD - up 82%
YRCW - up 60%
BAC- up 50%
SWC- up 38%
F- up 36%
AMD- up 34%
JCP- up 34%
Laggards include gold stocks ( I thought they would rise by now, but still have time, or I can roll them out as new Leaps open, usually in October each year): AAPL , WEN, WU, BKS, AVP, HL, IAG, etc. Of the 24 stocks, 3 were closed out - one a premature exercise (way early) - FTR- up 29% (final profit); two I closed out as they looked very weak, one for a profit TSL- up 6%, and the one for a loss, ACI - Obama's war on Coal! Combining all positions, they average 20% so far, with very little monitoring needed until expiry, when I decide to keep them and roll them out again or close them and seek new opportunities.
Notable exceptions: YRCW (above) had such a high option IV (implied volatility) that the money brought in from the two options (put and call) covered the price of the stock; NLY -up 20%- has a very nice dividend; NUGT- up 30% is a triple-strength gold ETF -based on the GDX ETF- can be very volatile, but gold is very oversold.
More information on Leaps and DITM can be found at: http://ditmcalls.blogspot.com/, under older posts, which is my DITM, or deep-in-the-money covered call strategy blog, started 5 years ago, but has been joined by the more profitable Leap strategy due to a steadily Fed-led rising stock market that decrease the much needed volatility for DITM. It still does much better than zero-rate CDs, MMFunds, etc., which is why I turned to it in 2009 after the ZIRP policy was initiated.
Caveat - these are not recommendations, as they are old trades; if one trades them in a deferred account - IRA- extra costs occur due to the cash needed to sequester possible put assignment (cost of stock put at the strike price). Stated returns are on a best efforts basis, using Schwab's P/L and personal recordkeeping.