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A few weeks ago, 2 weeks to be precise, as I don’t write very much anymore, I did something that I had never done before.

That was to sell positions in order to raise cash.

The positions that I sold, weren’t in my usual “covered option” portfolio. They were all uncovered index funds that I had held for quite a while and had some nice long-term profits on them, as they just went along for a long market ride.

2 weeks ago on a day that the DJIA went about 144 points higher, I sold 50% of those accumulated shares.

I did so because I saw nothing to warrant the belief that we were heading even higher, at least not for a basket of stocks kind of portfolio.

Individual names, maybe. A basket? Not so much.

But, I did so with the intention of going back in with the cash to buy once again, although not all at once if the S&P 500 had retraced a mere 3% or so.

In those 2 weeks, the portfolio that held those index funds outperformed the S&P 500 by 0.5%, partly because the S&P 500 fell about 0.1% in that time period.

Yesterday, on the heels of a 130 point gain in the DJIA, I sold the remaining 50% of those index fund shares.

That specific portfolio is now 100% cash, but I hope for not too long.

If and when that time comes, I will likely get back into index funds, but will probably do so the way I had done some 10 years ago. That would mean hedging the positions with call options or establishing the positions through the sale of put options.

Given how much cash I’m now sitting on, the likelihood is that if and when that time does come, I would probably go in sequentially with all of that cash, instead of committing it all at once. Almost like a self-directed dollar cost averaging plan.

Ultimately, the sales 2 weeks ago and again yesterday don’t change too much of what I continue to want to do, which is to generate income while at the same time attempting to outperform the S&P 500 by a modest 1% annually.

Obviously, you can’t do both of those things if you’re all in cash, so the rest of my portfolio is still heavily invested in positions that have the potential to generate some kind of income.

After about 5 years of documenting trades and having had about 1000 closed positions, I am left with a number of losers, much of which are related to energy and commodities.

What keeps me going is that I know those sectors will return, but the time to do so has already been prolonged.

The one thing good about those positions is that the underlying stocks do have some volatility at a time when just about nothing else does.

For that reason, I’ve gone back to making lots of DOH trades in 2017.

While I have enjoyed squeezing something out of those losers, the technique of doing so is time-consuming and requires a lot of attention, lest the positions get taken away from you at a strike price that’s well below the purchase price.

However, for the first 6 months of  2017 my premiums on DOH trades alone have been about 3% of my total portfolio value and on the first day of the second half I made 4 DOH trades.

I usually make those with only a one week horizon, so that means that I’ll be hyper-focused on Friday and will be prepared to roll them over before then, if necessary, as well.

But that’s on Friday.

FOr today, it’s the Fourth of July and I’ll be hyper-focused on keeping Laszlo, our long-haired mini-dachshund pacified as the sounds of fireworks will be making him crazy tonight.

Otherwise, for those of you still out there, have a Happy and Safe Fourth of July.



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Copyright 2017 TheAcsMan
  • Mark Georg

    Good morning George, looking forward to catching up on your articles this weekend. Last winter I shifted a good portion of my portfolio into January 2018 options. It was fun to frontload all those premiums but it’s hard to just sit still and wait for next January to roll around. I haven’t been active with many DOH trades, just a few here and there. I do have more free time now that hockey’s not on every other day and the house remodeling is done so I may have to revisit doing some of those.

    • TheAcsMan

      There haven’t been too many articles to catch up with. I’ve really enjoyed the break, but as far as “jobs” go, it is pretty easy just having to pound a keyboard.

      Those DOH trades have kept me reasonably happy.

      I don’t have anything that dated longer than Sept 2017 at the moment, but I already have my spreadsheets telling me what positions to not immediately re-invest, if and when assigned, in order to add to the cash raise. The next big cash raise is most likely going to put 50% back into positions on which I expect to write LEAPS.

      Ideally, the would be with staggered expiration dates.

      The basic formula is to look for a strike price that would represent a fair ROI in a fair world. FOr me, that’s 7% per year as a baseline.

      So, if I’m looking at a 2 year LEAP, I would want a strike that’s about 15% above the purchase price. To that gets added accumulated dividends and the premium, with an expectation that if the position is deep in the money there is a chance of early expiration if the final dividend is relatively soon before the expiration date.

      At some point, I know that I am going back to buy and hold and I don’t mind if some of those positions may end up deep in the money as long as I meet the ROI objective or at the very least it’s better than the alternative index fund for the same time period.